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Solving Endogenous Regime Switching Models

Author

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  • Jean Barthélemy

    (Centre de recherche de la Banque de France - Banque de France, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Magali Marx

    (Centre de recherche de la Banque de France - Banque de France)

Abstract

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.

Suggested Citation

  • Jean Barthélemy & Magali Marx, 2016. "Solving Endogenous Regime Switching Models," SciencePo Working papers Main hal-03393181, HAL.
    • Handle: RePEc:hal:spmain:hal-03393181
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03393181
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    More about this item

    Keywords

    Regime switching; Rational expectations models; Indeterminacy; Perturbation methods;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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