Macroeconomic Regimes

L. Baele, Geert Bekaert, S. Cho (), Koen Inghelbrecht and Antonio Moreno ()

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: We estimate a New-Keynesian macro model accommodating regime-switching behavior in monetary policy and in macro shocks. Key to our estimation strategy is the use of survey-based expectations for inflation and output. Output and inflation shocks shift to the low volatility regime around 1985 and 1990, respectively. However, we also identify multiple shifts between accommodating and active monetary policy regimes, which play an as important role as shock volatility in driving the volatility of the macro variables. We provide new estimates of the onset and demise of the Great Moderation and quantify the relative role played by macro-shocks and monetary policy. The estimated rational expectations model exhibits indeterminacy in the mean-square stability sense, mainly because monetary policy is excessively passive.

Keywords: Markov-Switching (MS) DSGE models; Survey Expectations; Great Moderation; Monetary Policy; Determinacy in MS DSGE models (search for similar items in EconPapers)
JEL-codes: C42 C53 E31 E32 E52 E58 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2013-12
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Related works:
Journal Article: Macroeconomic regimes (2015)
Working Paper: Macroeconomic Regimes (2011)
Working Paper: Macroeconomic Regimes (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:13/870

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