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Accuracy in simulations

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  • Wouter J. den Haan
  • Albert Marcet

Abstract

Since the actual solution to intertemporal rational expectations models is usually not known, it is useful to have criteria for judging the accuracy of a given numerical solution. In this paper we propose a test for accuracy that is easy to implement and can be applied to a wide class of models without knowledge of the exact solution. We discuss the power of the test by simulating several models with the linear-quadratic approximation and with the method of parameterized expectations. We conclude that the test is powerful.
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Suggested Citation

  • Wouter J. den Haan & Albert Marcet, 1993. "Accuracy in simulations," Economics Working Papers 42, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:42
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