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Solving Endogenous Regime Switching Models

Author

Listed:
  • Jean Barthélemy

    (Département d'économie)

  • Magali Marx

    (Département d'économie)

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," Sciences Po publications 2016-07, Sciences Po.
    • Handle: RePEc:spo:wpmain:info:hdl:2441/644vfdaim38frrvbit4u0bh0ha
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    References listed on IDEAS

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    Cited by:

    1. Andrei A. Sirchenko, 2017. "An endogenous regime-switching model of ordered choice with an application to federal funds rate target," 2017 Papers psi424, Job Market Papers.
    2. Chang, Yoosoon & Kwak, Boreum, 2017. "U.S. monetary-fiscal regime changes in the presence of endogenous feedback in policy rules," IWH Discussion Papers 15/2017, Halle Institute for Economic Research (IWH).
    3. Yoosoon Chang & Junior Maih & Fei Tan, 2018. "State Space Models with Endogenous Regime Switching," Working Paper 2018/12, Norges Bank.
    4. Klaus Neusser, 2018. "The New Keynesian Model with Stochastically Varying Policies," Diskussionsschriften dp1801, Universitaet Bern, Departement Volkswirtschaft.

    More about this item

    Keywords

    Regime switching; Rational expectations models; Indeterminacy; Perturbation methods;

    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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