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Solving Nonlinear Rational Expectations Models: A Stochastic Equilibrium Model of Interest Rates


  • Novales, Alfonso


The authors introduce, in this paper, a method for solving nonlinear quadratic Pareto problems. The method provides the analyst with a set of time series realizations for the variables in the economy. By obtaining a large number of these realizations, they can approximate the empirical distributions of a variety of statistics, which will give a detailed description of the model's properties. In particular, those statistics can be compared with the similar ones obtained from actual data, and different criteria for goodness of fit can be defined on the basis of these comparisons. Copyright 1990 by The Econometric Society.

Suggested Citation

  • Novales, Alfonso, 1990. "Solving Nonlinear Rational Expectations Models: A Stochastic Equilibrium Model of Interest Rates," Econometrica, Econometric Society, vol. 58(1), pages 93-111, January.
  • Handle: RePEc:ecm:emetrp:v:58:y:1990:i:1:p:93-111

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    References listed on IDEAS

    1. Geweke, John, 1989. "Bayesian Inference in Econometric Models Using Monte Carlo Integration," Econometrica, Econometric Society, vol. 57(6), pages 1317-1339, November.
    2. Phillips, P C B, 1991. "To Criticize the Critics: An Objective Bayesian Analysis of Stochastic Trends," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(4), pages 333-364, Oct.-Dec..
    3. Jacquier, Eric & Polson, Nicholas G & Rossi, Peter E, 2002. "Bayesian Analysis of Stochastic Volatility Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 69-87, January.
    4. Jacquier, Eric & Polson, Nicholas G & Rossi, Peter E, 1994. "Bayesian Analysis of Stochastic Volatility Models: Comments: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 413-417, October.
    5. repec:bla:restud:v:65:y:1998:i:3:p:361-93 is not listed on IDEAS
    6. Shephard, Neil, 1994. "Local scale models : State space alternative to integrated GARCH processes," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 181-202.
    7. Uhlig, Harald, 1994. "What Macroeconomists Should Know about Unit Roots: A Bayesian Perspective," Econometric Theory, Cambridge University Press, vol. 10(3-4), pages 645-671, August.
    8. Sims, Christopher A & Uhlig, Harald, 1991. "Understanding Unit Rooters: A Helicopter Tour," Econometrica, Econometric Society, vol. 59(6), pages 1591-1599, November.
    9. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
    10. Nelson, Daniel B., 1990. "Stationarity and Persistence in the GARCH(1,1) Model," Econometric Theory, Cambridge University Press, vol. 6(03), pages 318-334, September.
    11. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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    Cited by:

    1. Wouter J. Den Haan & Albert Marcet, 1994. "Accuracy in Simulations," Review of Economic Studies, Oxford University Press, vol. 61(1), pages 3-17.
    2. Beaudry, Paul & Guay, Alain, 1996. "What do interest rates reveal about the functioning of real business cycle models?," Journal of Economic Dynamics and Control, Elsevier, vol. 20(9-10), pages 1661-1682.
    3. Fabio Canova & Eva Ortega, 1996. "Testing calibrated general equilibrium models," Economics Working Papers 166, Department of Economics and Business, Universitat Pompeu Fabra.
    4. Adda, Jerome & Boucekkine, Raouf, 1995. "Liquidity constraints and time non-separable preferences: simulating models with large state spaces," UC3M Working papers. Economics 3911, Universidad Carlos III de Madrid. Departamento de Economía.
    5. Valles, Javier, 1997. "Aggregate investment in a business cycle model with adjustment costs," Journal of Economic Dynamics and Control, Elsevier, vol. 21(7), pages 1181-1198, June.
    6. Faust, Jon & Leeper, Eric M, 1997. "When Do Long-Run Identifying Restrictions Give Reliable Results?," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 345-353, July.
    7. Sumru Altug & Robert A. Miller, 1990. "Human capital, aggregate shocks, and panel data estimation," Discussion Paper / Institute for Empirical Macroeconomics 47, Federal Reserve Bank of Minneapolis.
    8. Rodríguez López, Rosa, 1996. "Modelos intertemporales de valoración de activos: análisis empírico para el caso español," DEE - Documentos de Trabajo. Economía de la Empresa. DB 6415, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    9. Orazio P. Attanasio, 1998. "Consumption Demand," NBER Working Papers 6466, National Bureau of Economic Research, Inc.
    10. Escribano, Alvaro & Pfann, Gerard A., 1998. "Non-linear error correction, asymmetric adjustment and cointegration," Economic Modelling, Elsevier, vol. 15(2), pages 197-216, April.
    11. Teresa García-Milá, 1990. "Un modelo dinámico con capital público y su estimación por simulación," Investigaciones Economicas, Fundación SEPI, vol. 14(3), pages 369-383, September.
    12. Pedro Garcia Duarte & Kevin D. Hoover, 2012. "Observing Shocks," History of Political Economy, Duke University Press, vol. 44(5), pages 226-249, Supplemen.
    13. Braun, Phillip A. & Constantinides, George M. & Ferson, Wayne E., 1993. "Time nonseparability in aggregate consumption : International evidence," European Economic Review, Elsevier, vol. 37(5), pages 897-920, June.
    14. Feldkord, Eva-Ulrike, 2005. "On the relevance of monetary aggregates in monetary policy models," HWWA Discussion Papers 317, Hamburg Institute of International Economics (HWWA).

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