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A comparison of numerical methods for the solution of continuous-time DSGE models

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  • Juan Carlos Parra-Alvarez

    ()
    (Aarhus University and CREATES)

Abstract

This paper evaluates the accuracy of a set of techniques that approximate the solution of continuous-time DSGE models. Using the neoclassical growth model I compare linear-quadratic, perturbation and projection methods. All techniques are applied to the HJB equation and the optimality conditions that define the general equilibrium of the economy. Two cases are studied depending on whether a closed form solution is available. I also analyze how different degrees of non-linearities affect the approximated solution. The results encourage the use of perturbations for reasonable values of the structural parameters of the model and suggest the use of projection methods when a high degree of accuracy is required.

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File URL: ftp://ftp.econ.au.dk/creates/rp/13/rp13_39.pdf
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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2013-39.

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Length: 35
Date of creation: 11 2013
Date of revision:
Handle: RePEc:aah:create:2013-39

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Continuous-Time DSGE Models; Linear-Quadratic Approximation; Perturbation Method; Projection Method;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. A comparison of numerical methods for the solution of continuous-time DSGE models
    by Christian Zimmermann in NEP-DGE blog on 2013-12-03 03:38:34

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