Perturbation Methods for Markov-Switching DSGE Models

Andrew Foerster, Juan F Rubio-Ramirez, Daniel Waggoner and Tao Zha

No 20390, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Markov-switching DSGE (MSDSGE) modeling has become a growing body of literature on economic and policy issues related to structural shifts. This paper develops a general perturbation methodology for constructing high-order approximations to the solutions of MSDSGE models. Our new method, called "the partition perturbation method,'' partitions the Markov-switching parameter space to keep a maximum number of time-varying parameters from perturbation. For this method to work in practice, we show how to reduce the potentially intractable problem of solving MSDSGE models to the manageable problem of solving a system of quadratic polynomial equations. We propose to use the theory of Gröbner bases for solving such a quadratic system. This approach allows us to first obtain all the solutions and then determine how many of them are stable. We illustrate the tractability of our methodology through two examples.

JEL-codes: C6 E3 G1 (search for similar items in EconPapers)
Date: 2014-08
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ore
Note: EFG ME
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Citations: View citations in EconPapers (20)

Published as Andrew Foerster & Juan F. Rubio‐Ramírez & Daniel F. Waggoner & Tao Zha, 2016. "Perturbation methods for Markov‐switching dynamic stochastic general equilibrium models," Quantitative Economics, Econometric Society, vol. 7(2), pages 637-669, 07.

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Related works:
Journal Article: Perturbation methods for Markov‐switching dynamic stochastic general equilibrium models (2016)
Working Paper: Perturbation methods for Markov-switching DSGE models (2014)
Working Paper: Perturbation Methods for Markov-Switching DSGE Models (2013)
Working Paper: Perturbation Methods for Markov-Switching DSGE Models (2013)
Working Paper: Perturbation methods for Markov-switching DSGE models (2013)
Working Paper: Perturbation methods for Markov-switching DSGE model (2013)
Working Paper: Perturbation Methods for Markov-Switching Models (2010)
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