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Semi-Global Solutions to DSGE Models: Perturbation around a Deterministic Path

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  • Ajevskis, Viktors

Abstract

This study presents an approach based on a perturbation technique to construct global solutions to dynamic stochastic general equilibrium models (DSGE). The main idea is to expand a solution in a series of powers of a small parameter scaling the uncertainty in the economy around a global solution to the deterministic model, i.e. the model where the volatility of the shocks vanishes. Under the assumption that a deterministic path is already known the higher order terms in the expansion are obtained recursively by solving linear rational expectations models with time-varying parameters. The present work proposes a method based on backward recursion for solving this type of models. The conditions under which the solutions exist are found.

Suggested Citation

  • Ajevskis, Viktors, 2015. "Semi-Global Solutions to DSGE Models: Perturbation around a Deterministic Path," Dynare Working Papers 44, CEPREMAP.
  • Handle: RePEc:cpm:dynare:044
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    Cited by:

    1. Lilia Maliar & Serguei Maliar & John B. Taylor & Inna Tsener, 2020. "A tractable framework for analyzing a class of nonstationary Markov models," Quantitative Economics, Econometric Society, vol. 11(4), pages 1289-1323, November.
    2. Viktors Ajevskis, 2019. "Generalised Impulse Response Function as a Perturbation of a Global Solution to DSGE Models," Working Papers 2019/04, Latvijas Banka.

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    More about this item

    Keywords

    DSGE; perturbation; rational expectations; time-varying parameters; backward induction;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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