New method detects economic equilibrium existence in Markov-switching models.
The article explains how to analyze Markov-switching Rational Expectations models using a solution method proposed by Cho in 2012. This method helps identify stable economic equilibriums and determine if they exist. The forward solution is the unique stable equilibrium under certain conditions, while stable solutions are associated with indeterminacy. The methodology can also detect cases where no relevant economic equilibrium exists. The document provides a technical guide on implementing this methodology in Matlab.