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On the accuracy of low-order projection methods

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  • Paul Pichler

    ()
    (University of Vienna)

Abstract

We use low-order projection methods to compute numerical solutions of the basic neoclassical stochastic growth model. We assess the quality of the obtained solutions, and compare them to numerical approximations derived with first and second-order perturbation techniques. We show that projection methods perform surprisingly poor when the degree of approximation is very low, and we provide some intuition behind this finding.

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File URL: http://www.accessecon.com/pubs/EB/2007/Volume3/EB-07C60003A.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 3 (2007)
Issue (Month): 50 ()
Pages: 1-8

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Handle: RePEc:ebl:ecbull:eb-07c60003

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Keywords: numerical accuracy;

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  1. Lawrence J. Christiano & Jonas D.M. Fisher, 1997. "Algorithms for solving dynamic models with occasionally binding constraints," Working Paper, Federal Reserve Bank of Cleveland 9711, Federal Reserve Bank of Cleveland.
  2. Radim Bohacek & Michal Kejak, 2005. "Projection Methods for Economies with Heterogeneous Agents," CERGE-EI Working Papers, The Center for Economic Research and Graduate Education - Economic Institute, Prague wp258, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  3. Fischer, Andreas & Michael J Dueker & Robert D Dittmar, 2003. "Stochastic Capital Depreciation and the Comovement of Hours and Productivity," Royal Economic Society Annual Conference 2003, Royal Economic Society 80, Royal Economic Society.
  4. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0282, National Bureau of Economic Research, Inc.
  5. Aruoba, S. Boragan & Fernandez-Villaverde, Jesus & Rubio-Ramirez, Juan F., 2006. "Comparing solution methods for dynamic equilibrium economies," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 30(12), pages 2477-2508, December.
  6. Alfred Maussner, 2005. "Projection Methods (GAUSS)," QM&RBC Codes, Quantitative Macroeconomics & Real Business Cycles 135, Quantitative Macroeconomics & Real Business Cycles.
  7. Paul Pichler, 2005. "Evaluating Approximate Equilibria of Dynamic Economic Models," Vienna Economics Papers, University of Vienna, Department of Economics 0510, University of Vienna, Department of Economics.
  8. Judd, Kenneth L., 1992. "Projection methods for solving aggregate growth models," Journal of Economic Theory, Elsevier, Elsevier, vol. 58(2), pages 410-452, December.
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