Characterizing Markov-Switching Rational Expectations Models

Cho, Seonghoon

doi:10.2139/ssrn.1468331

Cited by 30 publications

(54 citation statements)

References 39 publications

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“…Many solution approaches, like Farmer et al (2011), Svensson andWilliams (2007) or Cho (2014), start out with a linear model and then apply a Markov switching to the parameters. This strategy is reasonable as long as one takes a linear specification as the structural model.…”

Section: The Generic Modelmentioning

confidence: 99%

“…For the time being, the reader should note the way A + rt,r t+1 enters (11). This says that our algorithms will be able to handle cases where the coefficient matrix on forward-looking terms is known in the current period (A + rt,r t+1 = A + rt,rt ) as in Farmer et al (2011) but also the more complicated case where A + rt,r t+1 = A + rt,rt as in Cho (2014). This is part of the reasons why the notation of Schmitt-Grohe and Uribe (2004), where one can stack variables, is not appropriate in this context.…”

Section: Impact Of Endogenous State Variablesmentioning

confidence: 99%

“…This algorithm, by Cho (2014), finds the so-called "forward solution" by extending the forward method of Cho and Moreno (2011) to MS-DSGE models. The paper also addresses the issue of determinacy -existence of a unique stable solution.…”

Section: The Cho Algorithmmentioning

confidence: 99%

“…cho214 EIS is a six-variable model by Cho (2014), with switching elasticity of intertemporal substitution.…”

Section: Test Problemsmentioning

confidence: 99%

“…Papers in this class include Farmer et al (2011), Cho (2014, Svensson and Williams (2007) to name a few. One advantage of this approach is that one can handle substantially larger problems than the ones solved using global methods.…”

mentioning

confidence: 99%

See 4 more Smart Citations

Efficient Perturbation Methods for Solving Regime-Switching DSGE Models

Maih¹

2015

SSRN Journal

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In an environment where economic structures break, variances change, distributions shift, conventional policies weaken and past events tend to reoccur, economic agents have to form expectations over different regimes. This makes the regime-switching dynamic stochastic general equilibrium (RS-DSGE) model the natural framework for analyzing the dynamics of macroeconomic variables. We present efficient solution methods for solving this class of models, allowing for the transition probabilities to be endogenous and for agents to react to anticipated events. The solution algorithms derived use a perturbation strategy which, unlike what has been proposed in the literature, does not rely on the partitioning of the switching parameters. These algorithms are all implemented in RISE, a flexible object-oriented toolbox that can easily integrate alternative solution methods. We show that our algorithms replicate various examples found in the literature. Among those is a switching RBC model for which we present a third-order perturbation solution.JEL Classification: C6, E3, G1.

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Section: The Generic Modelmentioning

confidence: 99%

Section: Impact Of Endogenous State Variablesmentioning

confidence: 99%

Section: The Cho Algorithmmentioning

confidence: 99%

“…cho214 EIS is a six-variable model by Cho (2014), with switching elasticity of intertemporal substitution.…”

Section: Test Problemsmentioning

confidence: 99%

mentioning

confidence: 99%

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Efficient Perturbation Methods for Solving Regime-Switching DSGE Models

Maih¹

2015

SSRN Journal

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Financial crises and time-varying risk premia in a small open economy: a Markov-switching DSGE model for Estonia

Blagov

2017

Empir Econ

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Under a currency board the central bank relinquishes control over its monetary policy and domestic interest rates converge toward the foreign rates. Nevertheless a spread between both usually remains. This spread can be persistently positive due to increased risk in the economy. This paper models that feature by building a DSGE model with a currency board, where the domestic interest rate is derived as a function of the foreign rate, the external debt position and an exogenous risk premium component. Applying Markov-Switching allows for time variation in the volatility of the risk premium component. The model shows that the size of risk premia shocks in an economy with a currency board is small in quiet times but the shocks are much larger during crises, which the standard model would understate. The model is applied with Bayesian methods to Estonian data and is able to match the banking and financial crises.

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Methods for measuring expectations and uncertainty in Markov-switching models

Bianchi

2016

Journal of Econometrics

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Characterizing Markov-Switching Rational Expectations Models

Cited by 30 publications

References 39 publications

Efficient Perturbation Methods for Solving Regime-Switching DSGE Models

Efficient Perturbation Methods for Solving Regime-Switching DSGE Models

Financial crises and time-varying risk premia in a small open economy: a Markov-switching DSGE model for Estonia

Methods for measuring expectations and uncertainty in Markov-switching models

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