Evolving macroeconomic dynamics in a small open economy: an estimated Markov-switching DSGE model for the United Kingdom
AbstractThis paper carries out a systematic investigation into the possibility of structural shifts in the UK economy using a Markov-switching dynamic stochastic general equilibrium (DSGE) model. We find strong evidence for shifts in the structural parameters of several equations of the DSGE model. In addition, our results indicate that the volatility of structural shocks has also changed over time. However, a version of the model that allows for a change in the coefficients of the Taylor rule and shock volatilities provides the best model fit. Estimates from the selected DSGE model suggest that the mid-1970s were associated with a regime characterised by a smaller reaction by the monetary authorities to inflation developments.
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Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 397.
Length: 43 pages
Date of creation: 27 Jul 2010
Date of revision:
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Markov switching; DSGE; Bayesian estimation;
Find related papers by JEL classification:
- E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-06 (All new papers)
- NEP-CBA-2010-08-06 (Central Banking)
- NEP-DGE-2010-08-06 (Dynamic General Equilibrium)
- NEP-MAC-2010-08-06 (Macroeconomics)
- NEP-MIC-2010-08-06 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jesús Fernández-Villaverde & Juan F. Rubio-Ramírez, 2007.
"How Structural Are Structural Parameters?,"
NBER Working Papers
13166, National Bureau of Economic Research, Inc.
- Alejandro Justiniano & Bruce Preston, 2010.
"Monetary policy and uncertainty in an empirical small open-economy model,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 25(1), pages 93-128.
- Alejandro Justiniano & Bruce Preston, 2009. "Monetary policy and uncertainty in an empirical small open economy model," Working Paper Series WP-09-21, Federal Reserve Bank of Chicago.
- Haroon Mumtaz & Özlem Oomen & Jian Wang, 2006. "Exchange rate pass-through into UK import prices," Bank of England working papers 312, Bank of England.
- Bilgili, Faik & Tülüce, Nadide Sevil Halıcı & Doğan, İbrahim, 2012. "The determinants of FDI in Turkey: A Markov Regime-Switching approach," Economic Modelling, Elsevier, vol. 29(4), pages 1161-1169.
- Garreth Rule, 2011. "Issuing central bank securities," Handbooks, Centre for Central Banking Studies, Bank of England, edition 1, number 30.
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