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Easy EZ in DSGE

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  • Harald Uhlig

    (University of Chicago)

Abstract

Epstein-Zin preferences (or ``EZ'' preferences) have become increasingly popular in recent asset pricing work. Dynamic stochastic general equilibrium (DSGE) models which feature Epstein-Zin preferences are typically considered technically challenging, often thought to require sophisticated numerical solution methods to solve them and considerable additional thought to understand them. The purpose of this paper is to make DSGE modeling with Epstein-Zin preferences easy, relying on log-linearization to the equations characterizing the equilibrium dynamics and exploiting log-normality for asset pricing. The paper therefore provides a benchmark, from which to explore and understand the added benefit of higher-order approximations.

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File URL: http://www.economicdynamics.org/meetpapers/2010/paper_111.pdf
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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 111.

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Date of creation: 2010
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Handle: RePEc:red:sed010:111

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  1. Glenn D. Rudebusch & Eric T. Swanson, 2012. "The Bond Premium in a DSGE Model with Long-Run Real and Nominal Risks," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 105-43, January.
  2. Fatih Guvenen, 2009. "A Parsimonious Macroeconomic Model for Asset Pricing," Econometrica, Econometric Society, vol. 77(6), pages 1711-1750, November.
  3. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
  4. Harald Uhlig & Mathias Trabandt, 2009. "How Far are We from the Slippery Slope? The Laffer Curve Revisited," Working Papers 2009-005, Becker Friedman Institute for Research In Economics.
  5. Eric T. Swanson, 2009. "Risk aversion, the labor margin, and asset pricing in DSGE models," Working Paper Series 2009-26, Federal Reserve Bank of San Francisco.
  6. Charlotta Groth & Hashmat Khan, 2007. "Investment adjustment costs: evidence from UK and US industries," Bank of England working papers 332, Bank of England.
  7. Ravi Bansal & Amir Yaron, 2000. "Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles," NBER Working Papers 8059, National Bureau of Economic Research, Inc.
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