This project aims to reconsider the evolution of the business cycles by relying on the study of the nonlinear dynamics from both theoretical and empirical point of view. The project novelty consists in considering from an empirical and theoretical perspective the endogenous regime switches in both the firms and households behavioural equations which are modelled as changes in expectations and hazard functions determining the shapes of the price-setting curves. Therefore, our aim consists in building and estimating a monetary macro-model accommodating for regime-switching behaviour in monetary policy, price and wage settings, and macroeconomic volatilities.
The novelty of our approach has its roots on both a theoretical and an empirical perspective. From a theoretical point of view, we will consider an augmented version of a monetary model based on endogenous regime switches in the Phillips price and wage curves. These changes aim at capturing structural variations in the technologies available for price and wage setters and/or institutional changes. Moreover, we do consider from a theoretical point of view, regime-switching behavior also for the rest of the types of agents that populate the economy, and hence, permitting a better accommodation for the non-linearities present in the business cycle. From an empirical point of view, our research project at the very last stages form the completion, aims to investigate whether there is sufficient evidence for the, previously assumed, behavioural rule. At the best of our knowledge, there are not sufficiently large-scale empirical models in the literature dealing with such a large estimated parameter set being considered.