Assessing Changes in U.S. Monetary Policy in a Regime-Switching Rational Expectations Model
AbstractWe develop a new method for solving forward-looking rational expectations models with regime change and we apply it to the case of switches in monetary regime in U.S. data. Existing solutions to this problem are nonlinear since the parameters of a Markov switching model are functions of the state. We show how to enlarge the state space to obtain an equivalent problem that is linear in parameters. We show that the solution to the equivalent problem is a VAR with state dependent parameters that can be estimated by conventional methods and we present an application to US data
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 334.
Date of creation: 03 Dec 2006
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Regime switching; Rational expectations;
Find related papers by JEL classification:
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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