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Parameterized Expectations Algorithm and the Moving Bounds: a comment on convergence properties

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Abstract

In this paper we analyze the convergence properties of the moving bounds algorithm to initialize the Parameterized Expectations Algorithm suggested by Maliar and Maliar (2003) [Journal of Business and Economic Statistics 1, pp. 88-92]. We carry out a Monte Carlo experiment to check its performance against some initialization alternatives based on homotopy principles. We do so within the framework of two standard neoclassical growth models. We show that: (i) speed of convergence is poor as compared to alternatives; (ii) starting from a not very accurate initial guess might prevent convergence in relatively simple models. The results suggest the need to fine tune Maliar and Maliar's method to improve its convergence properties.

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File URL: http://public.centrodeestudiosandaluces.es/pdfs/E200512.pdf
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Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2005/12.

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Length: 13 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:cea:doctra:e2005_12

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Keywords: Nonlinear models; Numerical solution methods; Parameterized Expectations algorithm; Optimal growth;

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