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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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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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  1. 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.
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  6. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
  7. Burnside, Craig, 1998. "Solving asset pricing models with Gaussian shocks," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 22(3), pages 329-340, March.
  8. Woodford Michael, 2002. "Inflation Stabilization and Welfare," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 2(1), pages 1-53, February.
  9. 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, Elsevier, vol. 21(2-3), pages 195-232.
  10. 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, Wiley Blackwell, vol. 37(4), pages 537-42, October.
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