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Understanding Markov Switching Rational Expectations Model
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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.
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 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 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 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 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 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 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.
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 Optimal Monetary Policy in Markov-switching Models with Rational Expectations Agents by : Andrew P. Blake
Download or read book Optimal Monetary Policy in Markov-switching Models with Rational Expectations Agents written by Andrew P. Blake and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Optimal Discretionary Policy in Rational Expectations Models with Regime Switching by : Richhild Moessner
Download or read book Optimal Discretionary Policy in Rational Expectations Models with Regime Switching written by Richhild Moessner and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The existence of and uncertainty about structural change in the economy are important features facing policymakers. This paper considers the implications for policy design of uncertainty about structural change, modelling the time variation in parameters of forward-looking models as Markov processes. We extend an algorithm of Backus and Driffill for optimal discretionary policy in rational expectations models to the case with Markov switching in model parameters. As an illustration, we apply our method to determine the optimal monetary policy solution in the presence of structural changes in intrinsic output persistence, within a hybrid New Keynesian model estimated for the euro area. We find that the coefficients of the optimal policy rule are state-dependent, and depend non-linearly on the transition probabilities between states with different values of intrinsic output persistence.
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.
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.
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 Handbook of Mixture Analysis by : Sylvia Fruhwirth-Schnatter
Download or read book Handbook of Mixture Analysis written by Sylvia Fruhwirth-Schnatter and published by CRC Press. This book was released on 2019-01-04 with total page 522 pages. Available in PDF, EPUB and Kindle. Book excerpt: Mixture models have been around for over 150 years, and they are found in many branches of statistical modelling, as a versatile and multifaceted tool. They can be applied to a wide range of data: univariate or multivariate, continuous or categorical, cross-sectional, time series, networks, and much more. Mixture analysis is a very active research topic in statistics and machine learning, with new developments in methodology and applications taking place all the time. The Handbook of Mixture Analysis is a very timely publication, presenting a broad overview of the methods and applications of this important field of research. It covers a wide array of topics, including the EM algorithm, Bayesian mixture models, model-based clustering, high-dimensional data, hidden Markov models, and applications in finance, genomics, and astronomy. Features: Provides a comprehensive overview of the methods and applications of mixture modelling and analysis Divided into three parts: Foundations and Methods; Mixture Modelling and Extensions; and Selected Applications Contains many worked examples using real data, together with computational implementation, to illustrate the methods described Includes contributions from the leading researchers in the field The Handbook of Mixture Analysis is targeted at graduate students and young researchers new to the field. It will also be an important reference for anyone working in this field, whether they are developing new methodology, or applying the models to real scientific problems.
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.
