Standard solution methods for linearised models with rational expectations take the structural parameters to be constant. These solutions are fundamental for likelihood-based estimation of such models. Regime changes, such as those associated with either changed rules for economic policy,...

We show that when a model has more shocks than observed variables the estimated filtered and smoothed shocks will be correlated. This is despite no correlation being present in the data generating process. Additionally the estimated shock innovations may be autocorrelated. These correlations...