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The use of interval arithmetic in solving a non-linear rational expectation based multiperiod output-inflation process model: The case of the IN/GB method

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  • Stradi-Granados, Benito A.
  • Haven, Emmanuel

Abstract

The use of interval mathematics to solve non-linear problems is an attractive alternative to traditional real-number techniques. It was demonstrated in a previous paper [Stradi, B., Haven, E., 2005. Optimal investment strategy via interval arithmetic. International Journal of Theoretical and Applied Finance 8(2), 185-205] that interval arithmetic in the form of the Interval-Newton Generalized Bisection (IN/GB) method is effective in solving highly non-linear problems. In this paper we solve a rational expectations models with the help of the IN/GB method. This method is capable of (i) rapidly eliminating no solution sections of the multidimensional space and (ii) concentrate computational efforts on those areas of multidimensional space where there may be a solution.

Suggested Citation

  • Stradi-Granados, Benito A. & Haven, Emmanuel, 2010. "The use of interval arithmetic in solving a non-linear rational expectation based multiperiod output-inflation process model: The case of the IN/GB method," European Journal of Operational Research, Elsevier, vol. 203(1), pages 222-229, May.
    • Handle: RePEc:eee:ejores:v:203:y:2010:i:1:p:222-229
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