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

Perturbation Methods for Markov-Switching DSGE Models

Contents:

Author Info

  • Andrew Foerster
  • Juan Rubio-Ramirez
  • Dan Waggoner
  • Ta Zha

Abstract

This paper develops a general perturbation methodology for constructing high-order approximations to the solutions of Markov-switching DSGE models. We introduce an important and practical idea of partitioning the Markov-switching parameter space so that a steady state is well de?ned. With this de?nition, we show that the problem of ?nding an approximation of any order can be reduced to solving a system of quadratic equations. We propose using the theory of Gröbner bases in searching all the solutions to the quadratic system. This approach allows us to obtain all the approximations and ascertain how many of them are stable. Our methodology is applied to three models to illustrate its feasibility and practicality.

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: http://documentos.fedea.net/pubs/dt/2013/dt-2013-22.pdf
Download Restriction: no

Bibliographic Info

Paper provided by FEDEA in its series Working Papers with number 2013-22.

as in new window
Length:
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:fda:fdaddt:2013-22

Contact details of provider:
Web page: http://www.fedea.net

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. Troy Davig & Eric M. Leeper, 2005. "Generalizing the Taylor Principle," NBER Working Papers 11874, National Bureau of Economic Research, Inc.
  2. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, Elsevier, vol. 20(2), pages 177-181.
  3. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 115(1), pages 147-180, February.
  4. Jes�s Fern�ndez-Villaverde & Juan F. Rubio-Ram�rez, 2007. "Estimating Macroeconomic Models: A Likelihood Approach," Review of Economic Studies, Oxford University Press, Oxford University Press, vol. 74(4), pages 1059-1087.
  5. Frank Schorfheide, 2003. "Learning and monetary policy shifts," Working Paper, Federal Reserve Bank of Atlanta 2003-23, Federal Reserve Bank of Atlanta.
  6. Farmer, Roger E.A. & Waggoner, Daniel F. & Zha, Tao, 2009. "Understanding Markov-switching rational expectations models," Journal of Economic Theory, Elsevier, Elsevier, vol. 144(5), pages 1849-1867, September.
  7. Troy Davig & Taeyoung Doh, 2008. "Monetary policy regime shifts and inflation persistence," Research Working Paper, Federal Reserve Bank of Kansas City RWP 08-16, Federal Reserve Bank of Kansas City.
  8. S. Boragan Aruoba & Jesus Fernandez-Villaverde & Juan F. Rubio-Ramirez, 2003. "Comparing Solution Methods for Dynamic Equilibrium Economies," PIER Working Paper Archive, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 04-003, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  9. Francesco Bianchi, 2009. "Regime Switches, Agents’ Beliefs, and Post-World War II U.S. Macroeconomic Dynamics," 2009 Meeting Papers, Society for Economic Dynamics 198, Society for Economic Dynamics.
  10. Lars Svensson & Noah Williams, 2005. "Monetary Policy with Model Uncertainty: Distribution Forecast Targeting," NBER Working Papers 11733, National Bureau of Economic Research, Inc.
  11. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0282, National Bureau of Economic Research, Inc.
  12. Troy Davig & Eric M. Leeper & Todd B. Walker, 2010. ""Unfunded liabilities" and uncertain fiscal financing," Research Working Paper, Federal Reserve Bank of Kansas City RWP 10-09, Federal Reserve Bank of Kansas City.
  13. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262100711, December.
  14. Manuel S. Santos & Adrian Peralta-Alva, 2003. "Accuracy Of Simulations For Stochastic Dynamic Models," Economics Working Papers, Universidad Carlos III, Departamento de Economía we034615, Universidad Carlos III, Departamento de Economía.
  15. Eric M. Leeper & Tao Zha, 2002. "Modest policy interventions," Working Paper, Federal Reserve Bank of Atlanta 2002-19, Federal Reserve Bank of Atlanta.
  16. Farmer, Roger E.A. & Waggoner, Daniel F. & Zha, Tao, 2011. "Minimal state variable solutions to Markov-switching rational expectations models," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 35(12), pages 2150-2166.
  17. Todd Walker & Eric Leeper & Troy Davig, 2010. "Inflation and the Fiscal Limit," 2010 Meeting Papers, Society for Economic Dynamics 837, Society for Economic Dynamics.
  18. Thomas A. Lubik & Frank Schorfheide, 2004. "Testing for Indeterminacy: An Application to U.S. Monetary Policy," American Economic Review, American Economic Association, American Economic Association, vol. 94(1), pages 190-217, March.
  19. Christopher A. Sims & Tao Zha, 2004. "Were there regime switches in U.S. monetary policy?," Working Paper, Federal Reserve Bank of Atlanta 2004-14, Federal Reserve Bank of Atlanta.
  20. Ralph S.J. Koijen & Jules H. van Binsbergen & Juan F. Rubio-Ramírez & Jesus Fernandez-Villaverde, 2008. "Likelihood Estimation of DSGE Models with Epstein-Zin Preferences," 2008 Meeting Papers, Society for Economic Dynamics 1099, Society for Economic Dynamics.
  21. Ruchira Datta, 2010. "Finding all Nash equilibria of a finite game using polynomial algebra," Economic Theory, Springer, Springer, vol. 42(1), pages 55-96, January.
  22. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 357-84, March.
  23. Rudebusch, Glenn D. & Swanson, Eric T., 2008. "Examining the bond premium puzzle with a DSGE model," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(Supplemen), pages S111-S126, October.
  24. Jesus Fernández-Villaverde & Pablo Guerrón-Quintana & Juan F. Rubio-Ramírez, 2010. "Fortune or virtue: time-variant volatilities versus parameter drifting," Working Papers, Federal Reserve Bank of Philadelphia 10-14, Federal Reserve Bank of Philadelphia.
  25. Huixin Bi & Nora Traum, 2012. "Estimating Sovereign Default Risk," American Economic Review, American Economic Association, American Economic Association, vol. 102(3), pages 161-66, May.
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. Blagov , Boris & Funke, Michael, 2013. "The regime-dependent evolution of credibility: A fresh look at Hong Kong’s linked exchange rate system," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 24/2013, Bank of Finland, Institute for Economies in Transition.
  2. Andrew T. Foerster, 2013. "Monetary policy regime switches and macroeconomic dynamic," Research Working Paper, Federal Reserve Bank of Kansas City RWP 13-04, Federal Reserve Bank of Kansas City.

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:fda:fdaddt:2013-22. 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: (Carmen Arias).

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.