Methods for measuring expectations and uncertainty in Markov-switching models

Published

Journal Article

© 2015 Elsevier B.V. I develop methods to analyze multivariate Markov-switching models. Formulas for the evolution of first and second moments are derived and then used to characterize expectations, uncertainty, impulse responses, sources of uncertainty, and welfare implications of regime changes in general equilibrium models. The methods can be used to capture the link between uncertainty and the state of the economy. Campbell's present value decomposition is generalized to allow for parameter instability. Taking into account regime changes is shown to be important for expectations, welfare, and uncertainty. All results are derived analytically and are therefore suitable for structural estimation.

Full Text

Duke Authors

Cited Authors

  • Bianchi, F

Published Date

  • January 1, 2016

Published In

Volume / Issue

  • 190 / 1

Start / End Page

  • 79 - 99

Electronic International Standard Serial Number (EISSN)

  • 1872-6895

International Standard Serial Number (ISSN)

  • 0304-4076

Digital Object Identifier (DOI)

  • 10.1016/j.jeconom.2015.08.004

Citation Source

  • Scopus