Liu, Zheng; Waggoner, Daniel F.; Zha, Tao Sources of macroeconomic fluctuations: a regime-switching DSGE approach. (English) Zbl 1226.91033 Quant. Econ. 2, No. 2, 251-301 (2011). Summary: We examine the sources of macroeconomic fluctuations by estimating a variety of richly parameterized DSGE models within a unified framework that incorporates regime switching both in shock variances and in the inflation target. We propose an efficient methodology for estimating regime-switching DSGE models. 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 evidence that a shock to the capital depreciation rate, which resembles a financial shock, plays a crucial role in accounting for macroeconomic fluctuations. Cited in 22 Documents MSC: 91B51 Dynamic stochastic general equilibrium theory 91B82 Statistical methods; economic indices and measures Keywords:regime switch; depreciation shock; financial shock; Müeller method; volatility changes; inflation target PDFBibTeX XMLCite \textit{Z. Liu} et al., Quant. Econ. 2, No. 2, 251--301 (2011; Zbl 1226.91033) Full Text: DOI