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Solving dynamic general equilibrium models using a second-order approximation to the policy function

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  • Schmitt-Grohe, Stephanie
  • Uribe, Martin

Abstract

This paper derives a second-order approximation to the solution of rational expectations, dynamic, general equilibrium models. To illustrate its applicability, the method is used to solve the dynamics of a simple neoclassical model. The paper closes with a brief description of a set of MATLAB programs designed to implement the method.

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File URL: http://www.sciencedirect.com/science/article/B6V85-485PCNG-1/2/98d6406abc6364c678bf2f7a30e5238f
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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 28 (2004)
Issue (Month): 4 (January)
Pages: 755-775

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Handle: RePEc:eee:dyncon:v:28:y:2004:i:4:p:755-775

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Web page: http://www.elsevier.com/locate/jedc

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  1. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
  2. Kim, Jinill & Kim, Sunghyun Henry, 2003. "Spurious welfare reversals in international business cycle models," Journal of International Economics, Elsevier, vol. 60(2), pages 471-500, August.
  3. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
  4. Samuelson, Paul A, 1970. "The Fundamental Approximation Theorem of Portfolio Analysis in terms of Means, Variances, and Higher Moments," Review of Economic Studies, Wiley Blackwell, vol. 37(4), pages 537-42, October.
  5. Burnside, Craig, 1998. "Solving asset pricing models with Gaussian shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 22(3), pages 329-340, March.
  6. Michael Woodford, 2001. "Inflation Stabilization and Welfare," NBER Working Papers 8071, National Bureau of Economic Research, Inc.
  7. Collard, Fabrice & Juillard, Michel, 2001. "Accuracy of stochastic perturbation methods: The case of asset pricing models," Journal of Economic Dynamics and Control, Elsevier, vol. 25(6-7), pages 979-999, June.
  8. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
  9. Baoline Chen & Peter Zadrozny, 2003. "Higher-Moments in Perturbation Solution of the Linear-Quadratic Exponential Gaussian Optimal Control Problem," Computational Economics, Society for Computational Economics, vol. 21(1), pages 45-64, February.
  10. Jinill Kim & Sunghyun Henry Kim, 1999. "Inaccuracy of Loglinear Approximation in Welfare Calculations: the Case of International Risk Sharing," Computing in Economics and Finance 1999 251, Society for Computational Economics.
  11. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  12. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
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