A comparison of numerical methods for the solution of continuous-time DSGE models

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This paper evaluates the accuracy of a set of techniques that approximate the solution of continuous-time DSGE models. Using the neoclassical growth model I compare linear-quadratic, perturbation and projection methods. All techniques are applied to the HJB equation and the optimality conditions that define the general equilibrium of the economy. Two cases are studied depending on whether a closed form solution is available. I also analyze how different degrees of non-linearities affect the approximated solution. The results encourage the use of perturbations for reasonable values of the structural parameters of the model and suggest the use of projection methods when a high degree of accuracy is required.
OriginalsprogEngelsk
UdgivelsesstedAarhus
UdgiverInstitut for Økonomi, Aarhus Universitet
Antal sider35
StatusUdgivet - 18 nov. 2013
SerietitelCREATES Research Papers
Nummer2013-39

    Forskningsområder

  • Continuous-Time DSGE Models, Linear-Quadratic Approximation, Perturbation Method, Projection Method

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