Posted

October 02, 2013 11:21:02 AM

Date

2013-10

Author

Roger Farmer and Vadim Khramov

Affiliation

Office of Executive Director for the Russian Federation, IMF

Title

Solving and Estimating Indeterminate DSGE Models

Summary /
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 provide a selection method, based on Bayesian model comparison, to decide which errors to pick as fundamental and we present simulation results to show how our procedure works in practice.

Keywords

Indeterminacy, DSGE Models, Expectational Errors.

URL

http://www.imf.org/external/pubs/ft/wp/2013/wp13200.pdf

See

More articles ...