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On Stochastic Simulation of Forward-Looking Models

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  • Dag Kolsrud

Abstract

The solution of a nonlinear macroeconometric model with expectations of future-dated variables generally has to be approximated by numerical simulation. A brief review of deterministic, and stochastic dynamic simulations of a backward-looking model is followed by a conceptual presentation of methods for dynamic simulation of a forward-looking (rational expectations) model. I distinguish between uncertainty faced by rational agents and by the modeller, and suggest different ways of simulating random variables in the model. Simulations of simple linear and nonlinear univariate time-series models illustrate the methods.

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  • Dag Kolsrud, 2004. "On Stochastic Simulation of Forward-Looking Models," Computational Economics, Springer;Society for Computational Economics, vol. 24(2), pages 159-183, September.
    • Handle: RePEc:kap:compec:v:24:y:2004:i:2:p:159-183
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    Cited by:

    1. Dag Kolsrud, 2008. "Stochastic Ceteris Paribus Simulations," Computational Economics, Springer;Society for Computational Economics, vol. 31(1), pages 21-43, February.

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