This paper provides a general representation of endogenous and threshold-based regime switching models develops an efficient numerical solution method. The regime-switching is triggered endogenously when some variables cross threshold conditions that can themselves be regime-dependent. We illustrate our approach using RBC model with state-dependent government spending policies. It shown involve...

An active area of research in macroeconomics is to take DSGE models to the data. These models are often solved and estimated under specific assumptions about how the exogenous variables grow over time. In this paper, we first show that if the trends assumed for the model are incompatible with the observed data, or that the detrended data used in estimation are inconsistent with the stationarity...

Our previous work develops methods to study optimal policy in Markov jump-linear-quadratic (MJLQ) models with forward-looking variables: models with conditionally linear dynamics and conditionally quadratic preferences, where the matrices in both preferences and dynamics are random (Svensson and Williams, 2007a, 2007b). In particular, each model has multiple “modes”—a finite collection of diffe...

This paper investigates a general procedure to estimate second-order approximations to a DSGE model and compares the performance with the widely used estimation technique for a log-linearized economy on a version of new Keynesian monetary model. It is done in the context of posterior distributions, welfare cost, and impulse response analysis. Our findings include the followings. First, we find ...

An analytic function method is applied to illustrate Geweke (2010)’s three econometric interpretations for a generic rational expectations (RE) model. This makes the model’s cross-equation restrictions imposed by each RE econometric interpretation explicit, formal, and simple. It is shown that the degree of identification on the deep parameters is inversely related to the strength of underlying...

We provide a comprehensive assessment of the predictive power combinations dynamic stochastic general equilibrium (DSGE) models for GDP growth, inflation, and interest rate in euro area. employ battery static pooling weights based on Bayesian model averaging principles, prediction pools, factor representations, entertain six different DSGE specifications five weighting schemes. Our results indi...

In the 1970s, 1980s, and early 1990s, models used for monetary policy analysis combined the assumption of nominal rigidity with a simple structure that linked the quantity of money to aggregate spending. While the theoretical foundations of these models were weak, the approach proved remarkably useful in addressing a wide range of monetary policy topics.1 Today, the standard approach in monetar...

The purpose of this study is to analyse the dynamic response of a set of euro area macroeconomic variables to monetary policy and technology shocks. We do so by conducting simulations on three different models of the euro area. The first modelling approach corresponds to structural VAR models (SVAR), the second approach uses the NiGEM multi-country model developed by the National Institute of E...