A Higher-Order Taylor Expansion Approach to Simulation of Stochastic Forward-Looking Models with an Application to a Nonlinear Phillips Curve Model
We propose to apply to the simulation of general nonlinear rational-expectation models a method where the expectation functions are approximated through a higher-order Taylor expansion. This method has been advocated by Judd (1998) and others for the simulation of stochastic optimal-control problems and we extend its application to more general cases. The coefficients for the first-order approximation of the expectation function are obtained using a generalized eigen value decomposition as it is usual for the simulation of linear rational-expectation models. Coefficients for higher-order terms in the Taylor expansion are then obtained by solving a succession of linear systems. In addition, we provide a method to reduce a bias in the computation of the stochastic equilibrium of such models. These procedures are made available in DYNARE, a MATLAB and GAUSS based simulation program. This method is then applied to the simulation of a macroeconomic model embodying a nonlinear Phillips curve. We show that in this case a quadratic approximation is sufficient, but different in important ways from the simulation of a linearized version of the model. Copyright 2001 by Kluwer Academic Publishers
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 17 (2001)
Issue (Month): 2-3 (June)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/economic+theory/journal/10614/PS2|
When requesting a correction, please mention this item's handle: RePEc:kap:compec:v:17:y:2001:i:2-3:p:125-39. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.