Arbeitspapier

On the Solution of Markov-switching Rational Expectations Models

This paper describes a method for solving a class of forward-looking Markov-switching Rational Expectations models under noisy measurement, by specifying the unobservable expectations component as a general-measurable function of the observable states of the system, to be determined optimally via stochastic control and filtering theory. Solution existence is proved by setting this function to the regime-dependent feedback control minimizing the mean-square deviation of the equilibrium path from the corresponding perfect-foresight autoregressive Markov jump state motion. As the exact expression of the conditional (rational) expectations term is derived both in finite and infinite horizon model formulations, no (asymptotic) stationarity assumptions are needed to solve forward the system, for only initial values knowledge is required. A simple sufficient condition for the mean-square stability of the obtained rational expectations equilibrium is also provided.

Sprache
Englisch

Erschienen in
Series: Bonn Econ Discussion Papers ; No. 05/2011

Klassifikation
Wirtschaft
Optimization Techniques; Programming Models; Dynamic Analysis
Existence and Stability Conditions of Equilibrium
Computational Techniques; Simulation Modeling
Thema
Rational Expectations
Markov-switching dynamic systems
Dynamic programming
Time-varying Kalman filter
Rationale Erwartung
Dynamisches Modell
Gleichgewicht
Markovscher Prozess
Dynamische Optimierung
Zustandsraummodell
Theorie

Ereignis
Geistige Schöpfung
(wer)
Carravetta, Francesco
Sorge, Marco M.
Ereignis
Veröffentlichung
(wer)
University of Bonn, Bonn Graduate School of Economics (BGSE)
(wo)
Bonn
(wann)
2011

Handle
Letzte Aktualisierung
10.03.2025, 11:42 MEZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Carravetta, Francesco
  • Sorge, Marco M.
  • University of Bonn, Bonn Graduate School of Economics (BGSE)

Entstanden

  • 2011

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