E-Stability vis-a-vis Determinacy in Regime-Switching Model
McClung, Nigel (06.10.2020)
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Volyymi
121Numero
December
2020
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:bof-202002181129Tiivistelmä
This paper examines E-stability, determinacy, and indeterminacy in a general class of regime-switching models with lagged endogenous variables. Using determinacy conditions from Cho (2016, 2020), our first result extends McCallum (2007) to models with time-varying parameters: the unique mean-square stable equilibrium is E-stable if agents have current information and one-period-ahead decision rules. Further, we address the existence of E-stable non-fundamental equilibria, and find that Iteratively E-stable equilibria of indeterminate switching models can exist. Finally, we show that indeterminate New Keynesian models with persistent, recurring interest rate peg regimes admit Iteratively E-stable equilibria. In special cases, the Iterative E-stability condition coincides with the Long Run Taylor Principle.