Quantitative Economics
Journal Of The Econometric Society
Edited by: Stéphane Bonhomme • Print ISSN: 1759-7323 • Online ISSN: 1759-7331
Quantitative Economics: Jul, 2011, Volume 2, Issue 2
Sources of macroeconomic fluctuations: A regime-switching DSGE approach
Zheng Liu, Daniel F. Waggoner, Tao Zha
We examine the sources of macroeconomic fluctuations by estimating a variety
of richly parameterized DSGE models within a unified framework that incorpo-
rates regime switching both in shock variances and in the inflation target. We
propose an efficient methodology for estimating regime-switching DSGE mod-
els. Our counterfactual exercises show that changes in the inflation target are not
the main driving force of high inflation in the 1970s. The model that best fits the
U.S. time-series data is the one with synchronized shifts in shock variances across
two regimes, and the fit does not rely on strong nominal rigidities. We provide ev-
idence that a shock to the capital depreciation rate, which resembles a financial
shock, plays a crucial role in accounting for macroeconomic fluctuations.
Keywords. Regime switch, depreciation shock, financial shock, Müeller method,
volatility changes, inflation target.
JEL classification. C11, C51, E32, E42, E52.
of richly parameterized DSGE models within a unified framework that incorpo-
rates regime switching both in shock variances and in the inflation target. We
propose an efficient methodology for estimating regime-switching DSGE mod-
els. Our counterfactual exercises show that changes in the inflation target are not
the main driving force of high inflation in the 1970s. The model that best fits the
U.S. time-series data is the one with synchronized shifts in shock variances across
two regimes, and the fit does not rely on strong nominal rigidities. We provide ev-
idence that a shock to the capital depreciation rate, which resembles a financial
shock, plays a crucial role in accounting for macroeconomic fluctuations.
Keywords. Regime switch, depreciation shock, financial shock, Müeller method,
volatility changes, inflation target.
JEL classification. C11, C51, E32, E42, E52.
Supplemental Material
Supplement to "TECHNICAL APPENDIX I SOURCES OF MACROECONOMIC FLUCTUATIONS: A REGIME-SWITCHING DSGE APPROACH"
Journal News
March 5, 2024
Announcing the New Journal Editors
The terms of the Editors of the Econometric Society's three journals end June 30, 2025. We are pleased to announce the incoming Editors and to thank the outgoing Editors for their excellent and continuing service.
Econometrica: Since 2019, Guido Imbens has served as the 14th Editor of Econometrica. On July 1, 2025, Marina Halac will become the Editor.
Quantitative Economics: Stéphane Bonhomme has been the Editor of Quantitative Economics since 2021. His successor will be Bernard Salanié.
Theoretical Economics: The Editor of Theoretical Economics since 2021 has been Simon Board. Taking over for him in July 2025 will be Federico Echenique.
Guido, Stéphane, and Simon have been outstanding Editors. We are grateful to them for the work they have done and will continue to do, and we look forward to further congratulating them next year. We believe Marina, Bernard, and Federico will be outstanding successors and we thank them in advance for their service.
Finally, we are grateful to Larry Samuelson for chairing all three search committees, and we thank the search committee members for their hard and fruitful work:
Econometrica: Christian Dustmann, Lars Hansen, Alessandro Lizzeri, George Mailath, Ariel Pakes, Helene Rey, and Elie Tamer.
QE: Kate Ho, Michael Keane, Felix Kubler, Whitney Newey, and Frank Schorfheide.
TE: Jeff Ely, Johannes Horner, Gilat Levy, Meg Meyer, and Ran Spiegler.
