A Log-Linear Homotopy Approach to Initialize the Parameterized Expectations Algorithm
AbstractIn this paper I present a proposal to obtain appropriate initial conditions while solving general equilibrium rational expectations models with the Parameterized Expectations Algorithm. The proposal is based on a log-linear approximation for the model under study, so that it can be a particular variant of the homotopy approach. The main advantages of the proposal are: (i) it guarantees the ergodicity of the initial time series used as an input to the Parameterized Expectations Algorithm; (ii) it performs well in regard to the speed of convergence when compared to some homotopy alternatives; (iii) it is easy to implement. The claimed advantages are successfully illustrated in the framework of the Cooley and Hansen (1989) model with indivisible labor and money demand motivated via a cash-in-advance constraint, as compared to a procedure based on the standard implementation of homotopy principles.
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Bibliographic InfoArticle provided by Society for Computational Economics in its journal Computational Economics.
Volume (Year): 24 (2004)
Issue (Month): 1 (08)
Other versions of this item:
- Javier J. Pérez, 2001. "A Log-linear Homotopy Approach to Initialize the Parameterized Expectations Algorithm," Economic Working Papers at Centro de Estudios Andaluces E2001/02, Centro de Estudios Andaluces.
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
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