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A Systematic Comparison Of Alternative Linear Rational Expectation Model Solution Techniques

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  • Gary S. Anderson

    (Board of Governers)

Abstract

Since Blanchard & Kahn's seminal article (Blanchard and Kahn, 1980) a number of alternative approaches for solving linear rational expectations models have emerged. This paper describes, compares and contrasts the techniques of Anderson & Moore (Anderson, 1997; Anderson and Moore, 1983; Anderson and Moore, 1985), Binder (Binder and Peseran, 1994), King & Watson (King and Watson, 1998), Klein (Klein, 1999), Sims (Sims, 1996) QZ method, Uhlig (Uhlig, 1999) and Zadrozny (Zadrozny, 1998). The paper identifies several dimensions for comparison including computational efficiency, computational accuracy, theoretical rigor, ease of use and documentation. The paper employs linear algebra to reconcile the theoretical differences in the approaches. The paper uses a numerical example to characterize practical differences in employing the alternative procedures.

Suggested Citation

  • Gary S. Anderson, 2000. "A Systematic Comparison Of Alternative Linear Rational Expectation Model Solution Techniques," Computing in Economics and Finance 2000 142, Society for Computational Economics.
    • Handle: RePEc:sce:scecf0:142
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    Cited by:

    1. Malin Adolfson & Stefan Las√Âen & Jesper Lind√ & Lars E.O. Svensson, 2011. "Optimal Monetary Policy in an Operational Medium-Sized DSGE Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(7), pages 1287-1331, October.
    2. Stefan Laséen & Lars E.O. Svensson, 2011. "Anticipated Alternative policy Rate Paths in Plicy Simulations," International Journal of Central Banking, International Journal of Central Banking, vol. 7(3), pages 1-35, September.
    3. Paul Pichler, 2005. "Evaluating Approximate Equilibria of Dynamic Economic Models," Vienna Economics Papers 0510, University of Vienna, Department of Economics.
    4. Svensson, Lars E.O., 2010. "Inflation Targeting," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 22, pages 1237-1302, Elsevier.
    5. Stefan Laséen & Lars E.O. Svensson, 2009. "Anticipated Alternative Instrument-Rate Paths in Policy Simulations," NBER Working Papers 14902, National Bureau of Economic Research, Inc.
    6. Gary S. Anderson & Andrew T. Levin & Eric T. Swanson, 2006. "Higher-order perturbation solutions to dynamic, discrete-time rational expectations models," Working Paper Series 2006-01, Federal Reserve Bank of San Francisco.

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