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

State-Dependent Probability Distributions in Non Linear Rational Expectations Models

Contents:

Author Info

  • Magali Marx

    (Banque de France)

  • Jean Barthelemy

    (Banque de France)

Abstract

In this paper, we solve a large class of non-linear rational expectations models with regime switching, i.e. recurring shifts in parameters. The regime-switches and the shocks may follow state-dependent probability distributions. Using a perturbation approach, we first prove that sufficient conditions ensuring the existence of a unique stable equilibrium follow from the corresponding conditions in a regime-switching model with state-independent probabilities. Second, we provide first and second order Taylor expansions of the solution in subclasses of models. Third, we show that state-dependence modifies solution at first-order if the steady-state differs across regimes, otherwise, it only modifies higher orders. Finally, we illustrate our results with a Fisherian model of inflation determination and a New-Keynesian model in which monetary policy switches endogenously between a less-active (dovish) and a more-active (hawkish) reaction against inflation. These examples highlight that the state-dependent fluctuations of transition probabilities can substantially alter the equilibrium dynamics through economic agents' expectations.

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://www.economicdynamics.org/meetpapers/2013/paper_576.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 576.

as in new window
Length:
Date of creation: 2013
Date of revision:
Handle: RePEc:red:sed013:576

Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Email:
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

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. Lawrence J. Christiano & Jonas D.M. Fisher, 1997. "Algorithms for solving dynamic models with occasionally binding constraints," Working Paper 9711, Federal Reserve Bank of Cleveland.
  2. Eric M. Leeper & Tao Zha, 2002. "Modest policy interventions," Working Paper 2002-19, Federal Reserve Bank of Atlanta.
  3. Christopher A. Sims & Tao Zha, 2004. "Were there regime switches in U.S. monetary policy?," Working Paper 2004-14, Federal Reserve Bank of Atlanta.
  4. Gordon, S.F. & Filardo, A.J., 1993. "Business Cycle Durations," Papers 9328, Laval - Recherche en Politique Economique.
  5. Troy Davig & Eric M. Leeper, 2006. "Generalizing the Taylor Principle," Caepr Working Papers 2006-001, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  6. Christopher A. Sims, 1982. "Policy Analysis with Econometric Models," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(1), pages 107-164.
  7. Coe, Patrick J, 2002. "Financial Crisis and the Great Depression: A Regime Switching Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 76-93, February.
  8. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
  9. Thomas Lubik & Frank Schorfheide, 2002. "Testing for Indeterminacy:An Application to U.S. Monetary Policy," Economics Working Paper Archive 480, The Johns Hopkins University,Department of Economics, revised Jun 2003.
  10. Troy Davig & Taeyoung Doh, 2008. "Monetary policy regime shifts and inflation persistence," Research Working Paper RWP 08-16, Federal Reserve Bank of Kansas City.
  11. Barthélemy, J. & Marx, M., 2012. "Generalizing the Taylor Principle: New Comment," Working papers 403, Banque de France.
  12. Filardo, Andrew J, 1994. "Business-Cycle Phases and Their Transitional Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 299-308, July.
Full references (including those not matched with items on IDEAS)

Citations

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:red:sed013:576. 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: (Christian Zimmermann).

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.