Easy EZ in DSGE
Epstein-Zin preferences (or ``EZ'' preferences) have become increasingly popular in recent asset pricing work. Dynamic stochastic general equilibrium (DSGE) models which feature Epstein-Zin preferences are typically considered technically challenging, often thought to require sophisticated numerical solution methods to solve them and considerable additional thought to understand them. The purpose of this paper is to make DSGE modeling with Epstein-Zin preferences easy, relying on log-linearization to the equations characterizing the equilibrium dynamics and exploiting log-normality for asset pricing. The paper therefore provides a benchmark, from which to explore and understand the added benefit of higher-order approximations.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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- Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April.
- Fatih Guvenen, 2009.
"A Parsimonious Macroeconomic Model for Asset Pricing,"
Econometric Society, vol. 77(6), pages 1711-1750, November.
- Fatih Guvenen, 2009. "A Parsimonious Macroeconomic Model for Asset Pricing," NBER Working Papers 15243, National Bureau of Economic Research, Inc.
- Fatih Guvenen, 2009. "A parsimonious macroeconomic model for asset pricing," Staff Report 434, Federal Reserve Bank of Minneapolis.
- Lettau, Martin & Uhlig, Harald, 2002.
"The Sharpe Ratio And Preferences: A Parametric Approach,"
Cambridge University Press, vol. 6(02), pages 242-265, April.
- Lettau, Martin & Uhlig, Harald, 2001. "The Sharpe Ratio And Preferences: A Parametric Approach," Macroeconomic Dynamics, Cambridge University Press, vol. 5(04), pages 1-24, September.
- Ralph S.J. Koijen & Jules H. van Binsbergen & Juan F. Rubio-Ramírez & Jesus Fernandez-Villaverde, 2008. "Likelihood Estimation of DSGE Models with Epstein-Zin Preferences," 2008 Meeting Papers 1099, Society for Economic Dynamics.
- Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711.
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