Solving and Estimating Indeterminate DSGE Models / Roger E.A. Farmer, Vadim Khramov, Giovanni Nicolò.

Format:

Book

Author/Creator:

Farmer, Roger E.A.

Contributor:

Khramov, Vadim.

Nicolò, Giovanni.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19457.

NBER working paper series no. w19457

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

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.

Notes:

Print version record

September 2013.