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On Economic Structures and Model Solution Methods: Or Should Econometricians Use Newton Methods for Model Solution?

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  • Hughes Hallett, A J
  • Fisher, P G

Abstract

This paper makes the point that the choice of solution technique for nonlinear equation systems is a matter of trading the potentially smaller number of steps to convergence of formal Newton methods against the substantially smaller computational burden per step offered by simple first-order iterations such as the Gauss-Seidel method. Experiments with six typical macroeconomic models show that tradeoff to be sharply in favor of the latter. Moreover, reordering algorithms reduce all these models to near-recursive structures with relatively few feedback variables. This property is shown to be a natural consequence of the typical structure of an economic model. Copyright 1990 by Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 52 (1990)
Issue (Month): 3 (August)
Pages: 317-30

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Handle: RePEc:bla:obuest:v:52:y:1990:i:3:p:317-30

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Cited by:
  1. Armstrong, John & Black, Richard & Laxton, Douglas & Rose, David, 1998. "A robust method for simulating forward-looking models," Journal of Economic Dynamics and Control, Elsevier, vol. 22(4), pages 489-501, April.
  2. Juillard, Michel & Laxton, Douglas & McAdam, Peter & Pioro, Hope, 1998. "An algorithm competition: First-order iterations versus Newton-based techniques," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1291-1318, August.

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