Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098642 | Journal of Economic Dynamics and Control | 2013 | 18 Pages |
Abstract
This paper proposes a method to structurally estimate a model with a regime shift and evaluates the importance of acknowledging the break in the estimation. We estimate a DSGE model on Swedish data taking into account the regime change in 1993, from exchange rate targeting to inflation targeting. Ignoring the break leads to spurious estimates. Accounting for the break suggests that monetary policy reacted strongly to exchange rate movements in the first regime, and mostly to inflation in the second. The sources of business cycles and their transmission mechanism are significantly affected by the exchange rate regime.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Vasco Cúrdia, Daria Finocchiaro,