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Solving endogenous regime switching models

Listed author(s):
  • Barthélemy, Jean
  • Marx, Magali

This paper solves rational expectations models in which structural parameters switch across multiple regimes according to state-dependent (endogenous) transition probabilities. Assuming small shocks and smooth transition probabilities, we apply a perturbation approach. We first provide for conditions under which a unique bounded equilibrium exists. We then compute first- and second-order approximations. In a new-Keynesian model with monetary policy switching, we document new effects of monetary policy switching when transition probabilities depend on inflation.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165188917300192
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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 77 (2017)
Issue (Month): C ()
Pages: 1-25

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Handle: RePEc:eee:dyncon:v:77:y:2017:i:c:p:1-25
DOI: 10.1016/j.jedc.2017.01.011
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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