This paper considers a prototypical monetary business cycle model for the U.S. economy, in which the equilibrium is undetermined if monetary policy is ‘inactive? In previous multivariate studies it has been common practice to restrict parameter estimates to values for which the equilibrium is...

This paper estimates a dynamic stochastic equilibrium model in which monetary policy follows a nominal interest rate rule that is subject to regime switches in the target ination rate. Two specifications are considered: agents know the current state of monetary policy (full information) and...