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Accuracy of simulations for stochastic dynamic models

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Listed author(s):
  • Peralta Alva, Adrián
  • Santos, Manuel S.

Abstract

This paper provides a general framework for the simulation of stochastic dynamic models. Our analysis rests upon a continuity property of invariant distributions and a generalized law of large numbers. We then establish that the simulated moments from numerical approximations converge to their exact values as the approximation errors of the computed solutions converge to zero. These asymptotic results are of further interest in the comparative study of dynamic solutions, model estimation, and derivation of error bounds for the simulated moments.

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File URL: http://e-archivo.uc3m.es/bitstream/handle/10016/297/we034615.pdf?sequence=1
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Paper provided by Universidad Carlos III de Madrid. Departamento de Economía in its series UC3M Working papers. Economics with number we034615.

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Date of creation: Oct 2003
Handle: RePEc:cte:werepe:we034615
Contact details of provider: Web page: http://www.eco.uc3m.es/

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  1. Schenk-Hoppe, Klaus Reiner & Schmalfu[ss], Bjorn, 2001. "Random fixed points in a stochastic Solow growth model," Journal of Mathematical Economics, Elsevier, vol. 36(1), pages 19-30, September.
  2. Duffie, Darrell & Singleton, Kenneth J, 1993. "Simulated Moments Estimation of Markov Models of Asset Prices," Econometrica, Econometric Society, vol. 61(4), pages 929-952, July.
  3. Lucas, Robert E, Jr, 1980. "Methods and Problems in Business Cycle Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 696-715, November.
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  7. Manuel S. Santos, 2003. "Estimation by Simulation of Monotone Dynamical Systems," Levine's Working Paper Archive 506439000000000229, David K. Levine.
  8. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-450, June.
  9. Easley, David & Spulber, Daniel F, 1981. "Stochastic Equilibrium and Optimality with Rolling Plans," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 79-103, February.
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  12. Wouter J. Den Haan & Albert Marcet, 1994. "Accuracy in Simulations," Review of Economic Studies, Oxford University Press, vol. 61(1), pages 3-17.
  13. Aruoba, S. Boragan & Fernandez-Villaverde, Jesus & Rubio-Ramirez, Juan F., 2006. "Comparing solution methods for dynamic equilibrium economies," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2477-2508, December.
  14. Duncan K. Foley & Martin F. Hellwig, 1975. "Asset Management with Trading Uncertainty," Review of Economic Studies, Oxford University Press, vol. 42(3), pages 327-346.
  15. Hopenhayn, Hugo A & Prescott, Edward C, 1992. "Stochastic Monotonicity and Stationary Distributions for Dynamic Economies," Econometrica, Econometric Society, vol. 60(6), pages 1387-1406, November.
  16. Rabi Bhattacharya & Mukul Majumdar, 2003. "Random dynamical systems: a review," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 23(1), pages 13-38, December.
  17. John Laitner, 1988. "Bequests, Gifts, and Social Security," Review of Economic Studies, Oxford University Press, vol. 55(2), pages 275-299.
  18. Krebs, Tom, 2004. "Non-existence of recursive equilibria on compact state spaces when markets are incomplete," Journal of Economic Theory, Elsevier, vol. 115(1), pages 134-150, March.
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