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Rational Expectations In A Var With Markov Switching
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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:
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.
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.
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:
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.
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.
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.
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.
Book Synopsis Macroeconometrics and Time Series Analysis by : Steven Durlauf
Download or read book Macroeconometrics and Time Series Analysis written by Steven Durlauf and published by Springer. This book was released on 2016-04-30 with total page 417 pages. Available in PDF, EPUB and Kindle. Book excerpt: Specially selected from The New Palgrave Dictionary of Economics 2nd edition, each article within this compendium covers the fundamental themes within the discipline and is written by a leading practitioner in the field. A handy reference tool.
Book Synopsis Methods for Measuring Expectations and Uncertainty in Markov-switching Models by : Francesco Bianchi
Download or read book Methods for Measuring Expectations and Uncertainty in Markov-switching Models written by Francesco Bianchi and published by . This book was released on 2013 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: I develop a toolbox to analyze the properties of multivariate Markov-switching models. I first derive analytical formulas for the evolution of first and second moments, taking into account the possibility of regime changes. The formulas are then used to characterize the evolution of expectations and uncertainty, the propagation of the shocks, the contribution of the shocks to the overall volatility, and the welfare implications of regime changes in general equilibrium models. Then, I show how the methods can be used to capture the link between uncertainty and the state of the economy. Finally, I generalize Campbell's VAR implementation of Campbell and Shiller's present value decomposition to allow for parameter instability. The applications reveal the importance of taking into account the effects of regime changes on agents' expectations, welfare, and uncertainty. All results are derived analytically, do not require numerical integration, and are therefore suitable for structural estimation.
Book Synopsis Nonlinear Time Series Analysis of Economic and Financial Data by : Philip Rothman
Download or read book Nonlinear Time Series Analysis of Economic and Financial Data written by Philip Rothman and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 379 pages. Available in PDF, EPUB and Kindle. Book excerpt: Nonlinear Time Series Analysis of Economic and Financial Data provides an examination of the flourishing interest that has developed in this area over the past decade. The constant theme throughout this work is that standard linear time series tools leave unexamined and unexploited economically significant features in frequently used data sets. The book comprises original contributions written by specialists in the field, and offers a combination of both applied and methodological papers. It will be useful to both seasoned veterans of nonlinear time series analysis and those searching for an informative panoramic look at front-line developments in the area.
Book Synopsis Learning and Expectations in Macroeconomics by : George W. Evans
Download or read book Learning and Expectations in Macroeconomics written by George W. Evans and published by Princeton University Press. This book was released on 2001-01-28 with total page 439 pages. Available in PDF, EPUB and Kindle. Book excerpt: A crucial challenge for economists is to figure out how people interpret the world and form expectations that are likely to influence their economic activity. This work examines a variety of expectation formation models by focusing on the learning factor.
Book Synopsis Essays on Expectations in Macroeconomics by : Ina Hajdini
Download or read book Essays on Expectations in Macroeconomics written by Ina Hajdini and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation studies and quantifies the implications of various expectations formation processes for what concerns macroeconomic fluctuations and monetary policy transmission. The first chapter (joint work with Marco Airaudo) studies the existence of Stochastic Consistent Expectations Equilibria (SCEE) in linear Markov regime switching models. A SCEE exists when the model-implied mean and first order autocorrelation coincide with those predicted by the agents via misspecified forecasting rules. For a simple regime-switching monetary policy model, the parametric space where at least one SCEE exists is rather wide, and may extend well beyond the rational expectations equilibrium determinacy frontier. Misspecified expectations combined with regime-switching yield a strong endogenous amplification mechanism that help generate the near unit root dynamics for inflation observed in the U.S. before the Great Moderation. The second chapter considers a New Keynesian model in which agents form expectations based on a combination of misspecified forecasts and myopia. The proposed expectations formation process is tested against Rational Expectations (RE), as well other assumptions about expectations, with inflation forecasting data from the U.S. Survey of Professional Forecasters. The paper then derives the general equilibrium solution consistent with the proposed expectations formation process and estimates the model with likelihood-based Bayesian methods. The paper yields three novel results: (i) Datastrongly prefer the combination of autoregressive misspecified forecasting rules and myopia over other alternatives, including RE; (ii) The best fitting expectations formation process for both households and firms is characterized by high degrees of myopia and simple AR(1) forecasting rules; (iii) Despite the absence of real rigidities typically found necessary for New Keynesian models with RE, the estimated model with autoregressive forecasts and myopia generates substantial internal persistence and amplification to exogenous shocks. The third chapter proves that in Full-Information RE models with exogenous Markov regime shifts, ex-post regime-dependent forecasting errors can be described by available information at the time of forecast and ex-ante forecasting revisions, separately. In economic environments with structural changes, the FIRE hypothesis gives rise to waves of over-and under-response of forecasters to current events as well as new aggregate information at the time of forecast. Using inflation and output growth forecasting data from the Survey of Professional Forecasters, the paper presents new evidence of such waves, consistent with implications of Full-Information RE in models with regime shifts. Finally, the framework and insights are generalized to any dynamic stochastic general equilibrium model with exogenous Markov shifts, whose RE solution can be written as a Markov Switching VAR process.
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.
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 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.
Book Synopsis Assessing Dsge Models with Capital Accumulation and Indeterminacy by : Mr.Vadim Khramov
Download or read book Assessing Dsge Models with Capital Accumulation and Indeterminacy written by Mr.Vadim Khramov and published by International Monetary Fund. This book was released on 2012-03-01 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: The simulated results of this paper show that New Keynesian DSGE models with capital accumulation can generate substantial persistencies in the dynamics of the main economic variables, due to the stock nature of capital. Empirical estimates on U.S. data from 1960:I to 2008:I show the response of monetary policy to inflation was almost twice lower than traditionally considered, as capital accumulation creates an additional channel of influence through real interest rates in the production sector. Versions of the model with indeterminacy empirically outperform determinate versions. This paper allows for the reconsideration of previous findings and has significant monetary policy implications.
Book Synopsis Monetary Policy with Model Uncertainty by : Lars E. O. Svensson
Download or read book Monetary Policy with Model Uncertainty written by Lars E. O. Svensson and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: