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A comparison between the log-linear and the parameterized expectations methods

Author

Listed:
  • Ilaski Barañano

    () (Departamento de Fundamentos del Análisis Económico, Universidad del País Vasco, Av. Lehendakari Aguirre 83, 48015 Bilbao, Spain)

  • Amaia Iza

    () (Departamento de Fundamentos del Análisis Económico, Universidad del País Vasco, Av. Lehendakari Aguirre 83, 48015 Bilbao, Spain)

  • Jesús Vázquez

    () (Departamento de Fundamentos del Análisis Económico, Universidad del País Vasco, Av. Lehendakari Aguirre 83, 48015 Bilbao, Spain)

Abstract

This paper compares the performance of a log-linear method and a parameterized expectations method in solving a dynamic general equilibrium endogenous growth model with human capital. Quantitative evaluation based on second moment statistics shows that the results provided by the two numerical methods are very similar in this framework whenever the propagation mechanism of technology shocks is weak. However, the cross correlations of some relevant variables in the RBC literature obtained from the two methods are significantly different when the model exhibits a strong propagation mechanism. The parameterized expectations method captures the sensitiviness of second moment statistics to the curvature of the utility function while the log-linear method does not.

Suggested Citation

  • Ilaski Barañano & Amaia Iza & Jesús Vázquez, 2002. "A comparison between the log-linear and the parameterized expectations methods," Spanish Economic Review, Springer;Spanish Economic Association, vol. 4(1), pages 41-60.
  • Handle: RePEc:spr:specre:v:4:y:2002:i:1:p:41-60
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    Keywords

    RBC features; approximation solution methods; endogenous growth;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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