Farmer, Roger E. A., Khramov, Vadim and Nicolò, Giovanni (2015) Solving and estimating indeterminate DSGE models. Journal of Economic Dynamics and Control, 54 . pp. 17-36. doi:10.1016/j.jedc.2015.02.012

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Abstract

We propose a method for solving and estimating linear rational expectations models that exhibit indeterminacy and we provide step-by-step guidelines for implementing this method in the Matlab-based packages Dynare and Gensys. Our method redefines a subset of expectational errors as new fundamentals. This redefinition allows us to treat indeterminate models as determinate and to apply standard solution algorithms. We prove that our method is equivalent to the solution method proposed by Lubik and Schorfheide (2003, 2004), and using the New-Keynesian model described in Lubik and Schorfheide (2004), we demonstrate how to apply our theoretical results with a practical exercise.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory Q Science > QA Mathematics
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Rational expectations (Economic theory) -- Mathematical models
Journal or Publication Title:	Journal of Economic Dynamics and Control
Publisher:	Elsevier BV
ISSN:	0165-1889
Official Date:	May 2015
Dates:	Date Event May 2015 Published 24 February 2015 Available 12 February 2015 Accepted
Volume:	54
Page Range:	pp. 17-36
DOI:	10.1016/j.jedc.2015.02.012
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access

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