Understanding Markov-Switching Rational Expectations Models

This paper is a thorough revision of the earlier draft entitled "Understanding the New-Keynesian Model When Monetary Policy Switches Regimes" (NBER Working Paper 12965). We thank the referees and editors for thoughtful comments and Zheng Liu, Richard Rogerson, Eric Swanson, and John Williams for helpful discussions. We are grateful to Jacob Smith for excellent research assistance. This study is supported in part by NSF grant #0720839. The views expressed herein do not necessarily reflect those of the Federal Reserve Bank of Atlanta nor those of the Federal Reserve System. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.