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A Further Exploration of Some Computational Issues in Equilibrium Business Cycle Theory

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  • Radhika Lahiri

Abstract

This paper revisits some of the issues involved in the comparison of alternative computational procedures within the context of a dynamic stochastic general equilibrium model. The framework in question is a more general one, in which a “standard” or relatively simple model is nested as a special case. Results of numerical experiments suggest that different computational methods may be used interchangeably in the case of the standard model, but not in the case of the more general model. Varying a preference parameter allows us to compare what happens to solutions using alternative procedures as one moves away from the special case to the more general framework. On the basis of the numerical experiments conducted, we find that not only do differences in solutions become larger, but answers to several economic issues of interest can yield qualitatively different answers depending on the solution method used. Examples of such issues include how second moment features change as one varies the parameters of a model, and the relative contribution of different types of stochastic shocks to fluctuations in variables.

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File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2003/DP%20136%20Lahiri.pdf
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Bibliographic Info

Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 136.

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Date of creation: 20 Feb 2003
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Handle: RePEc:qut:dpaper:136

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  1. Christiano, Lawrence J, 1990. "Linear-Quadratic Approximation and Value-Function Iteration: A Comparison," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 99-113, January.
  2. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
  3. repec:cup:macdyn:v:6:y:2002:i:4:p:496-522 is not listed on IDEAS
  4. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  5. Jim Dolmas & Mark Wynne, 1994. "Fiscal policy in more general equilibrium," Working Papers 9407, Federal Reserve Bank of Dallas.
  6. Gomme, P. & Greenwood, J., 1992. "On the Cyclical Allocation of Risk," UWO Department of Economics Working Papers 9205, University of Western Ontario, Department of Economics.
  7. Lahiri, Radhika, 2002. "The Inflation Tax, Variable Time Preference, And The Business Cycle," Macroeconomic Dynamics, Cambridge University Press, vol. 6(04), pages 496-522, September.
  8. Epstein, Larry G., 1983. "Stationary cardinal utility and optimal growth under uncertainty," Journal of Economic Theory, Elsevier, vol. 31(1), pages 133-152, October.
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