Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/210068
Authors: 
Maih, Junior
Year of Publication: 
2015
Series/Report no.: 
Working Paper No. 01/2015
Abstract: 
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.
Subjects: 
DSGE
Markov switching
Newton algorithm
Sylvester equation
perturbation
matrix polynomial
JEL: 
C6
E3
G1
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-845-9
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/4.0/deed.no
Document Type: 
Working Paper
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