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A General and Efficient Method for Solving Regime-Switching DSGE Models

Author

Listed:
  • Julien Albertini

    (Univ Lyon, Université Lumiére Lyon 2)

  • Stéphane Moyen

    (Deutsche Bundesbank)

Abstract

This paper provides a general representation of endogenous and threshold-based regime-switching models while also developing an efficient numerical solution method. Regime-switching occurs endogenously when certain variables cross threshold conditions that can themselves be regime-dependent. We illustrate our approach using a RBC model with state-dependent government spending policies. It is shown that regime-switching models involve strong non linearities and discontinuities in the dynamics of the model. However, our numerical solution which relies on simulation and projection methods with regime-dependent policy rules, proves to be accurate and sufficiently fast address these challenging aspects. Several also explore several alternative specifications for the model and the method.

Suggested Citation

  • Julien Albertini & Stéphane Moyen, 2024. "A General and Efficient Method for Solving Regime-Switching DSGE Models," Computational Economics, Springer;Society for Computational Economics, vol. 64(6), pages 3645-3682, December.
    • Handle: RePEc:kap:compec:v:64:y:2024:i:6:d:10.1007_s10614-024-10570-z
    DOI: 10.1007/s10614-024-10570-z
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    More about this item

    Keywords

    Regime-switching; RBC model; Simulation; Accuracy;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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