How well do linear approximation methods work? results for suboptimal dynamic equilibria
AbstractReal business cycle models have recently been applied to settings in which equilibria are suboptimal. In most models the solutions are approximated using some type of linearization with little attention being given to the accuracy of the approximation. In this paper we investigate three different approximation methods in the context of a neoclassical model with a production tax and compare their solutions with solutions obtained from a discrete state space solution to the Euler equations of the model.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 90-11.
Date of creation: 1990
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