Department of Economics and Business Economics

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

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  • rp13_39

    Submitted manuscript, 821 KB, PDF document

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.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages35
Publication statusPublished - 18 Nov 2013
SeriesCREATES Research Papers
Number2013-39

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