Global stochastic properties of dynamic models and their linear approximations
AbstractThe dynamic properties of micro based stochastic macro models are often analyzed through a linearization around the associated deterministic steady state. Recent literature has investigated the errors made by such a deterministic approximation. Complementary to this literature we investigate how the linearization affects the stochastic properties of the original model. We consider a simple real business cycle model with noisy learning by doing. The solution has a stationary distribution that exhibits moment failure and has an unbounded support. The linear approximation, however, yields a stationary distribution with possibly a bounded support and all moments finite.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 34 (2010)
Issue (Month): 5 (May)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jedc
Linearization ARCH process Real business cycles model Stochastic difference equation;
Other versions of this item:
- Ana Babus & Casper G. de Vries, 2010. "Global Stochastic Properties of Dynamic Models and their Linear Approximations," Tinbergen Institute Discussion Papers 10-081/2, Tinbergen Institute.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Jinill Kim and Sunghyun Henry Kim, 2001. "Spurious Welfare Reversals in International Business Cycle Models," Computing in Economics and Finance 2001 3, Society for Computational Economics.
- Jinill Kim & Sunghyun Henry Kim, 1999. "Spurious Welfare Reversals in International Business Cycle Models," Virginia Economics Online Papers 319, University of Virginia, Department of Economics.
- Jesus Fernandez-Villaverde & Juan F. Rubio-Ramirez, 2004.
"Estimating Dynamic Equilibrium Economies: Linear versus Nonlinear Likelihood,"
PIER Working Paper Archive
04-005, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Juan F. Rubio-Ramirez & Jesus Fernández-Villaverde, 2005. "Estimating dynamic equilibrium economies: linear versus nonlinear likelihood," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(7), pages 891-910.
- Jesús Fernández-Villaverde & Juan Francisco Rubio-Ramírez, 2004. "Estimating dynamic equilibrium economies: linear versus nonlinear likelihood," Working Paper 2004-3, Federal Reserve Bank of Atlanta.
- Tesar, Linda L., 1995. "Evaluating the gains from international risksharing," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 95-143, June.
- S. Boragan Aruoba & Jesus Fernandez-Villaverde & Juan F. Rubio-Ramirez, 2003.
"Comparing Solution Methods for Dynamic Equilibrium Economies,"
PIER Working Paper Archive
04-003, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- 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, vol. 30(12), pages 2477-2508, December.
- S. B. Aruoba & Jesús Fernández-Villaverde & Juan F. Rubio-Ramirez, 2005. "Comparing Solution Methods for Dynamic Equilibrium Economies," Levine's Bibliography 122247000000000855, UCLA Department of Economics.
- S. Boragan Aruoba & Jesus Fernandez-Villaverde & Juan Francisco Rubio-Ramirez, 2003. "Comparing solution methods for dynamic equilibrium economies," Working Paper 2003-27, Federal Reserve Bank of Atlanta.
- Kydland, Finn E & Prescott, Edward C, 1982.
"Time to Build and Aggregate Fluctuations,"
Econometric Society, vol. 50(6), pages 1345-70, November.
- Finn E. Kydland & Edward C. Prescott, 1982. "Executable program for "Time to Build and Aggregate Fluctuations"," QM&RBC Codes 4, Quantitative Macroeconomics & Real Business Cycles.
- Finn E. Kydland & Edward C. Prescott, 1982. "Web interface for "Time to Build and Aggregate Fluctuations"," QM&RBC Codes 4a, Quantitative Macroeconomics & Real Business Cycles.
- Sutherland, Alan, 2002.
"A Simple Second-Order Solution Method For Dynamic General Equilibrium Models,"
CEPR Discussion Papers
3554, C.E.P.R. Discussion Papers.
- Alan Sutherland, 2002. "A Simple Second-Order Solution Method for Dynamic General Equilibrium Models," Discussion Paper Series, Department of Economics 200211, Department of Economics, University of St. Andrews.
- Campbell, John, 1994.
"Inspecting the Mechanism: An Analytical Approach to the Stochastic Growth Model,"
3196342, Harvard University Department of Economics.
- Campbell, John Y., 1994. "Inspecting the mechanism: An analytical approach to the stochastic growth model," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 463-506, June.
- John Y. Campbell, 1992. "Inspecting the Mechanism: An Analytical Approach to the Stochastic Growth Model," NBER Working Papers 4188, National Bureau of Economic Research, Inc.
- de Haan, Laurens & Resnick, Sidney I. & Rootzén, Holger & de Vries, Casper G., 1989. "Extremal behaviour of solutions to a stochastic difference equation with applications to arch processes," Stochastic Processes and their Applications, Elsevier, vol. 32(2), pages 213-224, August.
- Phornchanok Cumperayot & Casper G. de Vries, 2006. "Large Swings in Currencies driven by Fundamentals," Tinbergen Institute Discussion Papers 06-086/2, Tinbergen Institute.
- Harvey, Andrew & Ruiz, Esther & Shephard, Neil, 1994.
"Multivariate Stochastic Variance Models,"
Review of Economic Studies,
Wiley Blackwell, vol. 61(2), pages 247-64, April.
- Tom Doan, . "RATS programs to estimate multivariate stochastic volatility models," Statistical Software Components RTZ00093, Boston College Department of Economics.
- Loretti I. Dobrescu & Mihaela Neamtu & Dumitru Opris, 2011. "A Discrete--Delay Dynamic Model for the Stock Market," Discussion Papers 2012-11, School of Economics, The University of New South Wales.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.