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Solving linear rational expectations models: a horse race

Listed author(s):
  • Gary S. Anderson

This paper compares the functionality, accuracy, computational efficiency, and practicalities of alternative approaches to solving linear rational expectations models, including the procedures of (Sims, 1996), (Anderson and Moore, 1983), (Binder and Pesaran, 1994), (King and Watson, 1998), (Klein, 1999), and (Uhlig, 1999). While all six procedures yield similar results for models with a unique stationary solution, the AIM algorithm of (Anderson and Moore, 1983) provides the highest accuracy; furthermore, this procedure exhibits significant gains in computational efficiency for larger-scale models.

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File URL: http://www.federalreserve.gov/pubs/feds/2006/200626/200626pap.pdf
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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2006-26.

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Date of creation: 2006
Handle: RePEc:fip:fedgfe:2006-26
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  1. King, Robert G & Watson, Mark W, 1998. "The Solution of Singular Linear Difference Systems under Rational Expectations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 1015-1026, November.
  2. repec:cup:etheor:v:11:y:1995:i:2:p:229-57 is not listed on IDEAS
  3. Broze, Laurence & Gouriéroux, Christian & Szafarz, Ariane, 1995. "Solutions of multivariate Rational Expectations Models," Econometric Theory, Cambridge University Press, vol. 11(02), pages 229-257, February.
  4. Anderson, Gary S., 2010. "A reliable and computationally efficient algorithm for imposing the saddle point property in dynamic models," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 472-489, March.
  5. Binder,M. & Pesaran,H.M., 1995. "Multivariate Rational Expectations Models and Macroeconomic Modelling: A Review and Some New Results," Cambridge Working Papers in Economics 9415, Faculty of Economics, University of Cambridge.
  6. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
  7. Anderson, Gary & Moore, George, 1985. "A linear algebraic procedure for solving linear perfect foresight models," Economics Letters, Elsevier, vol. 17(3), pages 247-252.
  8. Zadrozny, Peter A., 1998. "An eigenvalue method of undetermined coefficients for solving linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1353-1373, August.
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