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Dynamic properties of two approximate solutions to a particular growth model

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  • Lawrence J. Christiano

Abstract

This paper investigates two methods of approximating the optimal decision rules of a stochastic, representative agent model which exhibits growth in steady state and cannot be expressed in linear–quadratic form. Both methods are modifications on the linear quadratic approximation technique proposed by Kydland and Prescott. It is shown that one of the solution methods leads to bizarre dynamic behavior, even with shocks of empirically reasonable magnitude. The other solution technique does not exhibit such bizarre behavior.

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File URL: http://www.minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=563
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File URL: http://www.minneapolisfed.org/research/WP/WP338.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 338.

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Date of creation: 1987
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Handle: RePEc:fip:fedmwp:338

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  1. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  2. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  3. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1991. "Stochastic trends and economic fluctuations," Working Paper Series, Macroeconomic Issues 91-4, Federal Reserve Bank of Chicago.
  4. Rodolfo E. Manuelli, 1986. "Modern business cycle analysis: a guide to the Prescott-Summers debate," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-8.
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Cited by:
  1. Gary D. Hansen, 1989. "Technical Progress and Aggregate Fluctuations," UCLA Economics Working Papers 546, UCLA Department of Economics.

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