Computing Second-Order-Accurate Solutions for Rational Expectation Models Using Linear Solution Methods
Posted: 29 Jun 2007
Abstract
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. The 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.
Keywords: Second-order approximation, Solution methods for rational expectation models
JEL Classification: C63, E0
Suggested Citation: Suggested Citation
Lombardo, Giovanni and Sutherland, Alan J., Computing Second-Order-Accurate Solutions for Rational Expectation Models Using Linear Solution Methods. Journal of Economic Dynamics and Control, Vol. 31, No. 2, 2007, Available at SSRN: https://ssrn.com/abstract=997233
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