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A Note on the Accuracy of Extended-Path Solution Methods for Dynamic General Equilibrium Economies

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  • David R.F. Love

    ()
    (Department of Economics, Brock University)

Abstract

We show that the deterministic Extended-Path (EP) method of Fair and Taylor (1983) solves standard dynamic stochastic general equilibrium models with similar accuracy to the best results reported in the literature for alternative methods. The EP method demands more computer time than other methods but has offsetting benefits in terms of simplicity and generality that make it an attractive choice.

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File URL: ftp://coffee.econ.brocku.ca/RePec/pdf/0801.pdf
File Function: First version, April 2008
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Bibliographic Info

Paper provided by Brock University, Department of Economics in its series Working Papers with number 0801.

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Length: 13 pages
Date of creation: Apr 2008
Date of revision: Apr 2008
Handle: RePEc:brk:wpaper:0801

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Keywords: Dynamic stochastic equilibrium; computational methods; non-linear solutions;

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  1. 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.
  2. Ray C. Fair & John B. Taylor, 1980. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Cowles Foundation Discussion Papers 564, Cowles Foundation for Research in Economics, Yale University.
  3. Gagnon, Joseph E, 1990. "Solving the Stochastic Growth Model by Deterministic Extended Path," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 35-36, January.
  4. Taylor, John B & Uhlig, Harald, 1990. "Solving Nonlinear Stochastic Growth Models: A Comparison of Alternative Solution Methods," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 1-17, January.
  5. Judd, Kenneth L., 1992. "Projection methods for solving aggregate growth models," Journal of Economic Theory, Elsevier, vol. 58(2), pages 410-452, December.
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