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

Design Limits in Regime-Switching Cases

Contents:

Author Info

  • Beatrice Pataracchia

    ()

Abstract

This paper characterizes the derivation and the assessment of design limits in the case of a regime-switching economy. The object of the analysis on design limits is to derive the restrictions on how feedback rules, the Taylor-type rules typically used in monetary economics, affect the frequency fluctuations underlying the state variable of interest. We extend the analysis in a structured context of model uncertainty where the uncertainty is described by the presence of different potential models whose probability of occurrence and switching is given by a known and ergodic Markov Chain transition matrix. The presence of switching modifies the characteristics of design limits in two main aspects. First, when the optimal variance minimizing rule is chosen, frequency specific restrictions appear more or less stringent with the respect to the linear case depending on the probability of switching: the higher it is, the worst is the performance in terms of frequency-specific fluctuations. Second, contrary to the linear case, design limits are also affected by the policy rule so that their role switches from a constraint to an externality that the policymaker may want to take into account.

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.econ-pol.unisi.it/quaderni/529.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 529.

as in new window
Length:
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:usi:wpaper:529

Contact details of provider:
Postal: Piazza S.Francesco,7 - 53100 Siena
Phone: (39)(0577)232620
Fax: (39)(0577)232661
Email:
Web page: http://www.deps.unisi.it/
More information through EDIRC

Related research

Keywords: Design Limits; Stabilization policy; Regime switching; Model Uncertainty;

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. Otrok, Christopher & Ravikumar, B. & Whiteman, Charles H., 2002. "Habit formation: a resolution of the equity premium puzzle?," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1261-1288, September.
  2. Brock,W.A. & Durlauf,S.N., 2003. "Elements of a theory of design limits to optimal policy," Working papers 25, Wisconsin Madison - Social Systems.
  3. Otrok, Christopher, 2001. "Spectral Welfare Cost Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 345-67, May.
  4. Roger E.A. Farmer & Daniel F. Waggoner & Tao Zha, 2008. "Minimal state variable solutions to Markov-switching rational expectations models," Working Paper 2008-23, Federal Reserve Bank of Atlanta.
  5. Brock, William A. & Durlauf, Steven N. & Rondina, Giacomo, 2013. "Design limits and dynamic policy analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2710-2728.
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. William A. Brock & Steven N. Durlauf & Giacomo Rondina, 2008. "Design Limits and Dynamic Policy Analysis," NBER Working Papers 14357, National Bureau of Economic Research, Inc.

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:usi:wpaper:529. 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: (Fabrizio Becatti).

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.