Advanced Search
MyIDEAS: Login to save this paper or follow this series

Estimation and Solution of Models with Expectations and Structural Changes

Contents:

Author Info

  • Mariano Kulish
  • Adrian Pagan

Abstract

Standard solution methods for linearised models with rational expectations take the structural parameters to be constant. These solutions are fundamental for likelihood based estimation of such models. Regime changes, such as those associated with either changed rules for economic policy, institutional changes, or changes in the technology of production, can generate large changes in the statistical properties of observable variables. In practice, structural change is accounted for during estimation by selecting a sub-sample for which a time-invariant structure seems valid. In this paper we develop solutions for linearised models with structural changes under a variety of assumptions regarding agents’ beliefs about those structural changes. We put the solutions in state space form and use the Kalman filter to construct the likelihood function. We apply the techniques to three examples: an inflationary program, a disinflation program and a transitory slowdown in trend growth.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2014-02/15_2014_kulish_pagan.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2014-15.

as in new window
Length: 28 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:een:camaaa:2014-15

Contact details of provider:
Postal: Crawford Building, Lennox Crossing, Building #132, Canberra ACT 0200
Phone: +61 2 6125 4705
Fax: +61 2 6125 5448
Email:
Web page: http://cama.crawford.anu.edu.au
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Roger E.A. Farmer & Daniel F. Waggoner & Tao Zha, 2009. "Understanding Markov-switching rational expectations models," Working Paper, Federal Reserve Bank of Atlanta 2009-05, Federal Reserve Bank of Atlanta.
  2. Harald Uhlig, 1995. "A toolkit for analyzing nonlinear dynamic stochastic models easily," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 101, Federal Reserve Bank of Minneapolis.
  3. Zheng Liu & Daniel F. Waggoner & Tao Zha, 2010. "Sources of Macroeconomic Fluctuations: A Regime-switching DSGE Approach," Emory Economics, Department of Economics, Emory University (Atlanta) 1002, Department of Economics, Emory University (Atlanta).
  4. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers, C.V. Starr Center for Applied Economics, New York University 98-01, C.V. Starr Center for Applied Economics, New York University.
  5. Roger E. A. Farmer & Daniel F. Waggoner & Tao Zha, 2010. "Minimal State Variable Solutions to Markov-switching Rational Expectations Models," Emory Economics, Department of Economics, Emory University (Atlanta) 1003, Department of Economics, Emory University (Atlanta).
  6. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 24(10), pages 1405-1423, September.
  7. Adam Cagliarini & Mariano Kulish, 2013. "Solving Linear Rational Expectations Models with Predictable Structural Changes," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 328-336, March.
  8. Peter N. Ireland, 2002. "Technology Shocks in the New Keynesian Model," Boston College Working Papers in Economics, Boston College Department of Economics 536, Boston College Department of Economics.
  9. Sims, Christopher A, 2002. "Solving Linear Rational Expectations Models," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 1-20, October.
  10. Cúrdia, Vasco & Finocchiaro, Daria, 2005. "An Estimated DSGE Model for Sweden with a Monetary Regime Change," Seminar Papers, Stockholm University, Institute for International Economic Studies 740, Stockholm University, Institute for International Economic Studies.
  11. James H. Stock & Mark W. Watson, 2007. "Why Has U.S. Inflation Become Harder to Forecast?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 39(s1), pages 3-33, 02.
  12. Thomas Lubik & Frank Schorfheide, 2002. "Testing for Indeterminacy:An Application to U.S. Monetary Policy," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 480, The Johns Hopkins University,Department of Economics, revised Jun 2003.
  13. Troy Davig & Eric M. Leeper, 2006. "Generalizing the Taylor Principle," Caepr Working Papers, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington 2006-001, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  14. Binder,M. & Pesaran,H.M., 1995. "Multivariate Rational Expectations Models and Macroeconomic Modelling: A Review and Some New Results," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9415, Faculty of Economics, University of Cambridge.
  15. Atsushi Inoue & Barbara Rossi, 2011. "Identifying the Sources of Instabilities in Macroeconomic Fluctuations," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1186-1204, November.
  16. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, Econometric Society, vol. 48(5), pages 1305-11, July.
  17. King, Robert G & Watson, Mark W, 1998. "The Solution of Singular Linear Difference Systems under Rational Expectations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 1015-26, November.
  18. James H. Stock & Mark W. Watson, 2007. "Erratum to "Why Has U.S. Inflation Become Harder to Forecast?"," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 39(7), pages 1849-1849, October.
  19. Binder, M. & Pesaran, H., 1996. "Multivariate Linear Rational Expectations Models: Characterisation of the Nature of the Solutions and Their Fully Recursive Computation," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9619, Faculty of Economics, University of Cambridge.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. M. Hashem Pesaran & Ron P. Smith, 2014. "Tests of Policy Ineffectiveness in Macroeconometrics," CESifo Working Paper Series 4871, CESifo Group Munich.
  2. Mariano Kulish & Adrian Pagan, 2013. "Issues in Estimating New-Keynesian Phillips Curves in the Presence of Unknown Structural Change," RBA Research Discussion Papers, Reserve Bank of Australia rdp2013-11, Reserve Bank of Australia.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:een:camaaa:2014-15. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Cama Admin).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.