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A Log-linear Homotopy Approach to Initialize the Parameterized Expectations Algorithm

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Author Info
Javier J. Pérez () (Centro de Estudios Andaluces)

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Abstract

In this paper I present a proposal to obtain appropriate initial conditions when solving general equilibrium rational expectations models with the Parameterized Expectations Algorithm. The proposal is based on a log-linear approximation to the model under study, so that it can be though of as 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 as regards 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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Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2001/02.

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Length: 19
Date of creation: 2001
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Handle: RePEc:cea:doctra:e2001_02

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Related research
Keywords: Parameterized Expectations Algorithm; initial conditions; log-linear approximations; homotopy; rational expectations;

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Find related papers by JEL classification:
C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques
E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation

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References listed on IDEAS
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.:
  1. Albert Marcet & David A. Marshall, 1994. "Solving nonlinear rational expectations models by parameterized expectations: convergence to stationary solutions," Discussion Paper / Institute for Empirical Macroeconomics 91, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  2. Alfonso Novales & Emilio Dominguez & Javier J. Perez & Jesus Ruiz, 1998. "Solving Non-linear Rational Expectations Models By Eigenvalue-Eigenvector Decompositions," QM&RBC Codes 124, Quantitative Macroeconomics & Real Business Cycles. [Downloadable!]
  3. Jensen, Mark J, 1997. "A Homotopy Approach to Solving Nonlinear Rational Expectation Problems," Computational Economics, Springer, vol. 10(1), pages 47-65, February. [Downloadable!]
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  4. Uhlig, H., 1995. "A toolkit for analyzing nonlinear dynamic stochastic models easily," Discussion Paper 97, Tilburg University, Center for Economic Research. [Downloadable!]
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  5. Albert Marcet & Guido Lorenzoni, 1998. "The Parameterized Expectations Approach: Some Practical Issues," QM&RBC Codes 128, Quantitative Macroeconomics & Real Business Cycles. [Downloadable!]
  6. Duffy, John & McNelis, Paul D., 2001. "Approximating and simulating the stochastic growth model: Parameterized expectations, neural networks, and the genetic algorithm," Journal of Economic Dynamics and Control, Elsevier, vol. 25(9), pages 1273-1303, September. [Downloadable!] (restricted)
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  7. Eaves, B. Curtis & Schmedders, Karl, 1999. "General equilibrium models and homotopy methods," Journal of Economic Dynamics and Control, Elsevier, vol. 23(9-10), pages 1249-1279, September. [Downloadable!] (restricted)
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Cited by:
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  1. Paul Pichler, 2005. "Evaluating Approximate Equilibria of Dynamic Economic Models," Vienna Economics Papers 0510, University of Vienna, Department of Economics. [Downloadable!]
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