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A reliable and computationally efficient algorithm for imposing the saddle point property in dynamic models

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  • Anderson, Gary S.

Abstract

This paper describes a set of algorithms for quickly and reliably solving linear rational expectations models. The utility, reliability and speed of these algorithms are a consequence of (1) the algorithm for computing the minimal dimension state space transition matrix for models with arbitrary numbers of lags or leads, (2) the availability of a simple modeling language for characterizing a linear model and (3) the use of the QR Decomposition and Arnoldi type eigenspace calculations. The paper also presents new formulae for computing and manipulating solutions for arbitrary exogenous processes.

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Bibliographic Info

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

Volume (Year): 34 (2010)
Issue (Month): 3 (March)
Pages: 472-489

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:3:p:472-489

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

Related research

Keywords: Linear rational expectations Blanchard-Kahn Saddle point solution;

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  14. Fuhrer, Jeffrey C, 1996. "Monetary Policy Shifts and Long-Term Interest Rates," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1183-1209, November.
  15. Jeffrey C. Fuhrer, 1994. "Optimal monetary policy and the sacrifice ratio," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 38, pages 43-84.
  16. Fuhrer, Jeffrey C., 1997. "Towards a compact, empirically-verified rational expectations model for monetary policy analysis," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 197-230, December.
  17. Orphanides, Athanasios, 2003. "Monetary policy evaluation with noisy information," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 605-631, April.
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