Minimal State Variable Solutions To Markov Switching Rational Expectations Models

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Minimal State Variable Solutions to Markov-Switching Rational Expectations Models

Author : Roger E. A. Farmer
Publisher :
ISBN 13 :
Total Pages : 30 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Minimal State Variable Solutions to Markov-Switching Rational Expectations Models by : Roger E. A. Farmer

Download or read book Minimal State Variable Solutions to Markov-Switching Rational Expectations Models written by Roger E. A. Farmer and published by . This book was released on 2014 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a new method for computing minimal state variable solutions (MSV) to Markov-switching rational expectations models. We provide an algorithm to compute an MSV solution and show how to test a given solution for uniqueness and boundedness. We construct an example that is calibrated to U.S. data and show that the MSV solution in our example is unique. This solution can potentially explain in three different ways the observed reduction in the variance of inflation and the interest rate after 1980: The policy rule might have changed, the variance of the fundamental shocks might have fallen, or the private sector equations might have been different across regimes. We compare these three explanations for the change in variance and show that any one of them can potentially account for the facts. Our paper provides the necessary tools for a future empirical study of this issue.

Roles of the Minimal State Variable Criterion in Rational Expectations Models

Author : Bennett T. McCallum
Publisher :
ISBN 13 :
Total Pages : 50 pages
Book Rating : 4.:/5 (318 download)

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Book Synopsis Roles of the Minimal State Variable Criterion in Rational Expectations Models by : Bennett T. McCallum

Download or read book Roles of the Minimal State Variable Criterion in Rational Expectations Models written by Bennett T. McCallum and published by . This book was released on 1999 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Expectational Stability in Regime-switching Rational Expectations Models

Author : William A. Branch
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (2 download)

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Book Synopsis Expectational Stability in Regime-switching Rational Expectations Models by : William A. Branch

Download or read book Expectational Stability in Regime-switching Rational Expectations Models written by William A. Branch and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Regime-switching rational expectations models, in which the parameters of the model evolve according to a finite state Markov process, have properties that differentiate them from linear models. Issues that are well understood in linear contexts, such as equilibrium determinacy and stability under adaptive learning, re-emerge in this new context. This paper outlines these issues and defines two classes of equilibria that emerge from regime-switching models. The distinguishing feature between the two classes is whether the conditional density of the endogenous state variables depends on past regimes. An assumption on whether agents condition their expectations on past regimes has important implications for determinacy and equilibrium dynamics. The paper addresses the stability properties of the different classes of equilibria under adaptive learning, extending the learning literature to a non-linear framework.

Expectational Stability in Regime-Switching Rational Expectations Models

Author : William Branch
Publisher :
ISBN 13 :
Total Pages : 35 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Expectational Stability in Regime-Switching Rational Expectations Models by : William Branch

Download or read book Expectational Stability in Regime-Switching Rational Expectations Models written by William Branch and published by . This book was released on 2013 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Regime-switching rational expectations models, in which the parameters of the model evolve according to a amp;ﬁnite state Markov process, have properties that differentiate them from linear models. Issues that are well understood in linear contexts, such as equilibrium determinacy and stability under adaptive learning, re-emerge in this new context. This paper outlines these issues and deamp;ﬁnes two classes of equilibria that emerge from regime-switching models. The distinguishing feature between the two classes is whether the conditional density of the endogenous state variables depends on past regimes. An assumption on whether agents condition their expectations on past regimes has important implications for determinacy and equilibrium dynamics. The paper addresses the stability properties of the different classes of equilibria under adaptive learning, extending the learning literature to a non-linear framework.

Understanding Markov-switching Rational Expectations Model

Author : Roger E.A. Farmer
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (31 download)

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Book Synopsis Understanding Markov-switching Rational Expectations Model by : Roger E.A. Farmer

Download or read book Understanding Markov-switching Rational Expectations Model written by Roger E.A. Farmer and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Understanding Markov-switching rational expectations models

Author : Roger E. A. Farmer
Publisher :
ISBN 13 :
Total Pages : 25 pages
Book Rating : 4.:/5 (31 download)

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Book Synopsis Understanding Markov-switching rational expectations models by : Roger E. A. Farmer

Download or read book Understanding Markov-switching rational expectations models written by Roger E. A. Farmer and published by . This book was released on 2009 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a set of necessary and sufficient conditions for equilibria to be determinate in a class of forward-looking Markov-switching rational expectations models and we develop an algorithm to check these conditions in practice. We use three examples, based on the new-Keynesian model of monetary policy, to illustrate our technique. Our work connects applied econometric models of Markov-switching with forward looking rational expectations models and allows an applied researcher to construct the likelihood function for models in this class over a parameter space that includes a determinate region and an indeterminate region.

Understanding Markov-Switching Rational Expectations Models

Author : Roger E. A. Farmer
Publisher :
ISBN 13 :
Total Pages : 27 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Understanding Markov-Switching Rational Expectations Models by : Roger E. A. Farmer

Download or read book Understanding Markov-Switching Rational Expectations Models written by Roger E. A. Farmer and published by . This book was released on 2014 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a set of necessary and sufficient conditions for equilibria to be determinate in a class of forward-looking Markov-switching rational expectations models and we develop an algorithm to check these conditions in practice. We use three examples, based on the new-Keynesian model of monetary policy, to illustrate our technique. Our work connects applied econometric models of Markov-switching with forward looking rational expectations models and allows an applied researcher to construct the likelihood function for models in this class over a parameter space that includes a determinate region and an indeterminate region.

Characterizing Markov-Switching Rational Expectations Models

Author : Seonghoon Cho
Publisher :
ISBN 13 :
Total Pages : 42 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Characterizing Markov-Switching Rational Expectations Models by : Seonghoon Cho

Download or read book Characterizing Markov-Switching Rational Expectations Models written by Seonghoon Cho and published by . This book was released on 2014 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Markov-switching rational expectations (MSRE) models can yield fresh insights beyond what linear rational expectations (LRE) models have done for macroeconomics, as Davig and Leeper (2007) and Farmer, Waggoner and Zha (2009), among others, have noted and predicted. A lack of tractable methodological foundations, however, may have hindered researchers from uncovering the salient features of MSRE models. This study improves the status quo to a level at which MSRE models can be analyzed as easily and comprehensively as LRE models. Specifically, we provide the conditions for determinacy and indeterminacy in the mean-square stability sense as well as a solution method to general MSRE models. These tasks are accomplished by applying the standard forward method without reference to the eigensystem of a MSRE model, which is unknown due to its inherent nonlinearity. We apply our methodology to a New-Keynesian model subject to regime-switching in monetary policy and find some unforeseen but intuitive determinacy results. Markov-switching in the private sector is also shown to deliver potentially rich dynamics.

Rational Expectations in a VAR with Markov Switching

Author : Mårten Blix
Publisher :
ISBN 13 :
Total Pages : 52 pages
Book Rating : 4.3/5 ( download)

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Book Synopsis Rational Expectations in a VAR with Markov Switching by : Mårten Blix

Download or read book Rational Expectations in a VAR with Markov Switching written by Mårten Blix and published by . This book was released on 1997 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:

The Oxford Handbook of Computational Economics and Finance

Author : Shu-Heng Chen
Publisher : Oxford University Press
ISBN 13 : 0199844380
Total Pages : 785 pages
Book Rating : 4.1/5 (998 download)

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Book Synopsis The Oxford Handbook of Computational Economics and Finance by : Shu-Heng Chen

Download or read book The Oxford Handbook of Computational Economics and Finance written by Shu-Heng Chen and published by Oxford University Press. This book was released on 2018-01-12 with total page 785 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Oxford Handbook of Computational Economics and Finance provides a survey of both the foundations of and recent advances in the frontiers of analysis and action. It is both historically and interdisciplinarily rich and also tightly connected to the rise of digital society. It begins with the conventional view of computational economics, including recent algorithmic development in computing rational expectations, volatility, and general equilibrium. It then moves from traditional computing in economics and finance to recent developments in natural computing, including applications of nature-inspired intelligence, genetic programming, swarm intelligence, and fuzzy logic. Also examined are recent developments of network and agent-based computing in economics. How these approaches are applied is examined in chapters on such subjects as trading robots and automated markets. The last part deals with the epistemology of simulation in its trinity form with the integration of simulation, computation, and dynamics. Distinctive is the focus on natural computationalism and the examination of the implications of intelligent machines for the future of computational economics and finance. Not merely individual robots, but whole integrated systems are extending their "immigration" to the world of Homo sapiens, or symbiogenesis.

A Unified Approach to Determinacy Conditions with Regime Switching

Author : Jean Barthelemy
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (139 download)

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Book Synopsis A Unified Approach to Determinacy Conditions with Regime Switching by : Jean Barthelemy

Download or read book A Unified Approach to Determinacy Conditions with Regime Switching written by Jean Barthelemy and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The conditions that ensure the existence of a unique stable equilibrium - determinacy conditions - for rational expectations models with Markov switching depend on the stability concept, contrasting with standard linear rational expectations models. In this paper, we offer a unified framework for the two commonly used stability concepts (boundedness and mean-square stability) and derive determinacy conditions based on simple metrics. We especially show that, qualitatively, mean-square stable solutions are always at least as many as bounded solutions: no mean-square stable solution implies no bounded solution, a unique mean-square stable solution implies either a unique or no bounded solution, and a model with multiple mean-square solutions can have multiple, unique or no bounded solution. We then provide for two economic applications and show that, in these examples, the determinacy frontiers for the two stability concepts do not perfectly coincide but the difference appears only marginal economically.

Complex Systems in Finance and Econometrics

Author : Robert A. Meyers
Publisher : Springer Science & Business Media
ISBN 13 : 1441977007
Total Pages : 919 pages
Book Rating : 4.4/5 (419 download)

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Book Synopsis Complex Systems in Finance and Econometrics by : Robert A. Meyers

Download or read book Complex Systems in Finance and Econometrics written by Robert A. Meyers and published by Springer Science & Business Media. This book was released on 2010-11-03 with total page 919 pages. Available in PDF, EPUB and Kindle. Book excerpt: Finance, Econometrics and System Dynamics presents an overview of the concepts and tools for analyzing complex systems in a wide range of fields. The text integrates complexity with deterministic equations and concepts from real world examples, and appeals to a broad audience.

Indeterminacy in a Forward-Looking Regime-Switching Model

Author : Roger E. A. Farmer
Publisher :
ISBN 13 :
Total Pages : 16 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Indeterminacy in a Forward-Looking Regime-Switching Model by : Roger E. A. Farmer

Download or read book Indeterminacy in a Forward-Looking Regime-Switching Model written by Roger E. A. Farmer and published by . This book was released on 2014 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper is about the properties of Markov-switching rational expectations (MSRE) models. We present a simple monetary policy model that switches between two regimes with known transition probabilities. The first regime, treated in isolation, has a unique determinate rational expectations equilibrium, and the second contains a set of indeterminate sunspot equilibria. We show that the Markov switching model, which randomizes between these two regimes, may contain a continuum of indeterminate equilibria. We provide examples of stationary sunspot equilibria and bounded sunspot equilibria, which exist even when the MSRE model satisfies a generalized Taylor principle. Our result suggests that it may be more difficult to rule out nonfundamental equilibria in MRSE models than in the single-regime case where the Taylor principle is known to guarantee local uniqueness.

Handbook of Macroeconomics

Author : John B. Taylor
Publisher : Elsevier
ISBN 13 : 0444594884
Total Pages : 2744 pages
Book Rating : 4.4/5 (445 download)

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Book Synopsis Handbook of Macroeconomics by : John B. Taylor

Download or read book Handbook of Macroeconomics written by John B. Taylor and published by Elsevier. This book was released on 2016-11-12 with total page 2744 pages. Available in PDF, EPUB and Kindle. Book excerpt: Handbook of Macroeconomics Volumes 2A and 2B surveys major advances in macroeconomic scholarship since the publication of Volume 1 (1999), carefully distinguishing between empirical, theoretical, methodological, and policy issues, including fiscal, monetary, and regulatory policies to deal with crises, unemployment, and economic growth. As this volume shows, macroeconomics has undergone a profound change since the publication of the last volume, due in no small part to the questions thrust into the spotlight by the worldwide financial crisis of 2008. With contributions from the world’s leading macroeconomists, its reevaluation of macroeconomic scholarship and assessment of its future constitute an investment worth making. Serves a double role as a textbook for macroeconomics courses and as a gateway for students to the latest research Acts as a one-of-a-kind resource as no major collections of macroeconomic essays have been published in the last decade Builds upon Volume 1 by using its section headings to illustrate just how far macroeconomic thought has evolved

Indeterminacy in a Forward Looking Regime Switching Model

Author : Roger E. A. Farmer
Publisher :
ISBN 13 :
Total Pages : 32 pages
Book Rating : 4.3/5 ( download)

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Book Synopsis Indeterminacy in a Forward Looking Regime Switching Model by : Roger E. A. Farmer

Download or read book Indeterminacy in a Forward Looking Regime Switching Model written by Roger E. A. Farmer and published by . This book was released on 2006 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper is about the properties of Markov switching rational expectations (MSRE) models. We present a simple monetary policy model that switches between two regimes with known transition probabilities. The first regime, treated in isolation, has a unique determinate rational expectations equilibrium and the second contains a set of indeterminate sunspot equilibria. We show that the Markov switching model, which randomizes between these two regimes, may contain a continuum of indeterminate equilibria. We provide examples of stationary sunspot equilibria and bounded sunspot equilibria which exist even when the MSRE model satisfies a 'generalized Taylor principle'. Our result suggests that it may be more difficult to rule out non-fundamental equilibria in MRSE models than in the single regime case where the Taylor principle is known to guarantee local uniqueness.

Economic Dynamics in Discrete Time, second edition

Author : Jianjun Miao
Publisher : MIT Press
ISBN 13 : 026235733X
Total Pages : 849 pages
Book Rating : 4.2/5 (623 download)

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Book Synopsis Economic Dynamics in Discrete Time, second edition by : Jianjun Miao

Download or read book Economic Dynamics in Discrete Time, second edition written by Jianjun Miao and published by MIT Press. This book was released on 2020-03-03 with total page 849 pages. Available in PDF, EPUB and Kindle. Book excerpt: A unified and comprehensive introduction to the analytical and numerical tools for solving dynamic economic problems; substantially revised for the second edition. This book offers a unified, comprehensive, and up-to-date treatment of analytical and numerical tools for solving dynamic economic problems. The focus is on introducing recursive methods—an important part of every economist's set of tools—and readers will learn to apply recursive methods to a variety of dynamic economic problems. The book is notable for its combination of theoretical foundations and numerical methods. Each topic is first described in theoretical terms, with explicit definitions and rigorous proofs; numerical methods and computer codes to implement these methods follow. Drawing on the latest research, the book covers such cutting-edge topics as asset price bubbles, recursive utility, robust control, policy analysis in dynamic New Keynesian models with the zero lower bound on interest rates, and Bayesian estimation of dynamic stochastic general equilibrium (DSGE) models. This second edition has been substantially updated. Responding to renewed interest in modeling with multiple equilibria, it incorporates new material on this topic throughout. It offers an entirely new chapter on deterministic nonlinear systems, and provides new material on such topics as linear planar systems, chaos, bifurcations, indeterminacy and sunspot solutions, pruning nonlinear solutions, the bandit problem, rational inattention models, bequests, self-fulfilling prophecies, the cyclical behavior of unemployment and vacancies, and the long-run risk model. The exposition of each chapter has been revised and improved, and many new figures, Matlab codes, and exercises have been added. A student solutions manual can be purchased separately.

Blanchard and Kahn's (1980) Solution for a Linear Rational Expectations Model with One State Variable and One Jump Variable

Author : Robert Kollmann
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis Blanchard and Kahn's (1980) Solution for a Linear Rational Expectations Model with One State Variable and One Jump Variable by : Robert Kollmann

Download or read book Blanchard and Kahn's (1980) Solution for a Linear Rational Expectations Model with One State Variable and One Jump Variable written by Robert Kollmann and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This note corrects Blanchard and Kahn's (1980) formula for the solution of a linear dynamic rational expectations model with one predetermined and one non-predetermined endogenous variable.