TY  - BOOK
AU  - Farmer,Roger E.A.
AU  - Waggoner,Daniel F.
AU  - Zha,Tao
ED  - National Bureau of Economic Research.
TI  - Indeterminacy in a Forward Looking Regime Switching Model
T2  - NBER working paper series
PY  - 2006///
CY  - Cambridge, Mass.
PB  - National Bureau of Economic Research
N1  - September 2006; Hardcopy version available to institutional subscribers
N2  - This paper is about the properties of Markov switching rational expectations (MSRE) models. We present a simple monetary policy model that switches between two regimes with known transition probabilities. The first regime, treated in isolation, has a unique determinate rational expectations equilibrium and the second contains a set of indeterminate sunspot equilibria. We show that the Markov switching model, which randomizes between these two regimes, may contain a continuum of indeterminate equilibria. We provide examples of stationary sunspot equilibria and bounded sunspot equilibria which exist even when the MSRE model satisfies a 'generalized Taylor principle'. Our result suggests that it may be more difficult to rule out non-fundamental equilibria in MRSE models than in the single regime case where the Taylor principle is known to guarantee local uniqueness
UR  - https://www.nber.org/papers/w12540
UR  - http://dx.doi.org/10.3386/w12540
ER  -