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Computing Second-Order-Accurate Solutions for Rational Expectation Models Using Linear Solution Methods

  • Giovanni Lombardo

    ()

  • Alan Sutherland

    ()

This paper shows how to compute a second-order accurate solution of a non-linear rational expectation model using algorithms developed for the solution of linear rational expectation models. This result is a state-space representation for the realized values of the variables of the model. This state-space representation can easily be used to compute impulse responses as well as conditional and unconditional forecasts.

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File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/cp0504.pdf
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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Conference Paper Series with number 0504.

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Date of creation: Mar 2005
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Handle: RePEc:san:cdmacp:0504
Contact details of provider: Postal: Department of Economics, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
Fax: 01334 462444
Web page: http://www.st-andrews.ac.uk/cdmaEmail:


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  1. Schmitt-Grohe, Stephanie & Uribe, Martin, 2004. "Solving dynamic general equilibrium models using a second-order approximation to the policy function," Journal of Economic Dynamics and Control, Elsevier, vol. 28(4), pages 755-775, January.
  2. Harald Uhlig, 1998. "A Toolkit for Analysing Nonlinear Dynamic Stochastic Models Easily," QM&RBC Codes 123, Quantitative Macroeconomics & Real Business Cycles.
  3. Pierpaolo Benigno & Michael Woodford, 2004. "Optimal Monetary and Fiscal Policy: A Linear-Quadratic Approach," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 271-364 National Bureau of Economic Research, Inc.
  4. Christopher A. Sims & Jinill Kim & Sunghyun Kim, 2003. "Calculating and Using Second Order Accurate Solution of Discrete Time Dynamic Equilibrium Models," Computing in Economics and Finance 2003 162, Society for Computational Economics.
  5. Lawrence J. Christiano, 1998. "Solving dynamic equilibrium models by a method of undetermined coefficients," Working Paper 9804, Federal Reserve Bank of Cleveland.
  6. Sutherland, Alan, 2002. "A Simple Second-Order Solution Method For Dynamic General Equilibrium Models," CEPR Discussion Papers 3554, C.E.P.R. Discussion Papers.
  7. repec:dgr:kubcen:1996116 is not listed on IDEAS
  8. Kim, Jinill & Kim, Sunghyun Henry, 2003. "Spurious welfare reversals in international business cycle models," Journal of International Economics, Elsevier, vol. 60(2), pages 471-500, August.
  9. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
  10. Canton, E.J.F., 1996. "Business Cycles in a Two-Sector Model of Endogenous Growth," Discussion Paper 1996-116, Tilburg University, Center for Economic Research.
  11. Pierpaolo Benigno & Michael Woodford, 2005. "Optimal stabilization policy when wages and prices are sticky: the case of a distorted steady state," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 127-180.
  12. Jinill Kim & Sunghyun Kim & Ernst Schaumburg & Christopher A. Sims, 2003. "Calculating and Using Second Order Accurate Solutions of Discrete Time," Levine's Bibliography 666156000000000284, UCLA Department of Economics.
  13. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
  14. King, Robert G & Watson, Mark W, 2002. "System Reduction and Solution Algorithms for Singular Linear Difference Systems under Rational Expectations," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 57-86, October.
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