TY  - JOUR
AU  - Farmer,Roger E.A.
AU  - Zha,Tao
AU  - Waggoner,Daniel F.
TI  - Understanding Markov-Switching Rational Expectations Models
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14710
PY  - 2009
Y2  - February 2009
UR  - http://www.nber.org/papers/w14710
L1  - http://www.nber.org/papers/w14710.pdf
N1  - Author contact info:
Roger Farmer
UCLA
Department of Economics
Box 951477
Los Angeles, CA 90095-1477
Tel: 310/825-6547
Fax: 310/825-9528
E-Mail: rfarmer@econ.ucla.edu

Tao Zha
Emory University
1602 Fishburne Drive
Atlanta, GA 30322-2240
Tel: 404/723-3254
Fax: 404/727-4639
E-Mail: tzha@emory.edu

Daniel F. Waggoner
Federal Reserve Bank of Atlanta
1000 Peachtree Street N.E.
Atlanta, Georgia 30309-4470
E-Mail: dwaggoner@frbatlanta.org
AB  - We develop a set of necessary and sufficient conditions for equilibria to be determinate in a class of forward-looking Markov-switching rational expectations models and we develop an algorithm to check these conditions in practice. We use three examples, based on the new-Keynesian model of monetary policy, to illustrate our technique. Our work connects applied econometric models of Markov-switching with forward looking rational expectations models and allows an applied researcher to construct the likelihood function for models in this class over a parameter space that includes a determinate region and an indeterminate region.
ER  -