2022/09/12 by Jordan Roulleau-Pasdeloup, Roulleau-Pasdeloup, Jordan
Economics, Econometrics and Finance · #Economic Policies and Impacts #Economic theories and models #FOS: Economics and business #General Economics (econ.GN) #Monetary Policy and Economic Impact
paper · pdf · doi:10.48550/arxiv.2209.05081
openalex publication_date 2022/09/12 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
I show that a class of Linear DSGE models with one endogenous state variable can be represented as a three-state Markov chain. I develop a new analytical solution method based on this representation, which amounts to solving for a vector of Markov states and one transition probability. These two objects constitute sufficient statistics to compute in closed form objects that have routinely been computed numerically: impulse response function, cumulative sum, present discount value multiplier. I apply the method to a standard New Keynesian model that features optimal monetary policy with commitment.