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Terminal conditions in forward-looking economic models

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  • Richard Pierse

    (University of Surrey)

Abstract

In this paper we show how the popular L-B-J algorithm for solving forward-looking economic models using Newton methods can be gen- eralised to allow for a block of terminal equations for variables that appear with a lead. The e¤ect of choosing di¤erent types of termi- nal condition is explored in a simple stochastic growth model using WinSolve, a general nonlinear model solution package.

Suggested Citation

  • Richard Pierse, 2006. "Terminal conditions in forward-looking economic models," School of Economics Discussion Papers 1006, School of Economics, University of Surrey.
  • Handle: RePEc:sur:surrec:1006
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    File URL: https://repec.som.surrey.ac.uk/2006/DP10-06.pdf
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    References listed on IDEAS

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    1. Fair, Ray C & Taylor, John B, 1983. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 51(4), pages 1169-1185, July.
    2. Taylor, John B & Uhlig, Harald, 1990. "Solving Nonlinear Stochastic Growth Models: A Comparison of Alternative Solution Methods," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 1-17, January.
    3. Juillard, Michel & Laxton, Douglas & McAdam, Peter & Pioro, Hope, 1998. "An algorithm competition: First-order iterations versus Newton-based techniques," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1291-1318, August.
    4. den Haan, Wouter J & Marcet, Albert, 1990. "Solving the Stochastic Growth Model by Parameterizing Expectations," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 31-34, January.
    5. Boucekkine, Raouf, 1995. "An alternative methodology for solving nonlinear forward-looking models," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 711-734, May.
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