Solving and Estimating Indeterminate DSGE Models
Electronic Access:
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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 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.
Series:
Working Paper No. 2013/200
Subject:
Estimation techniques Labor Neoclassical theory Rational expectations
English
Publication Date:
October 1, 2013
ISBN/ISSN:
9781475589214/1018-5941
Stock No:
WPIEA2013200
Pages:
30
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