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Parameterized Expectations Algorithm and the Moving Bounds: a comment on convergence properties

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Abstract

In this paper we analyze the convergence properties of the moving bounds algorithm to initialize the Parameterized Expectations Algorithm suggested by Maliar and Maliar (2003) [Journal of Business and Economic Statistics 1, pp. 88-92]. We carry out a Monte Carlo experiment to check its performance against some initialization alternatives based on homotopy principles. We do so within the framework of two standard neoclassical growth models. We show that: (i) speed of convergence is poor as compared to alternatives; (ii) starting from a not very accurate initial guess might prevent convergence in relatively simple models. The results suggest the need to fine tune Maliar and Maliar's method to improve its convergence properties.

Suggested Citation

  • Javier J. Pérez & A. Jesús Sánchez, 2005. "Parameterized Expectations Algorithm and the Moving Bounds: a comment on convergence properties," Economic Working Papers at Centro de Estudios Andaluces E2005/12, Centro de Estudios Andaluces.
  • Handle: RePEc:cea:doctra:e2005_12
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    More about this item

    Keywords

    Nonlinear models; Numerical solution methods; Parameterized Expectations algorithm; Optimal growth;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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