Taylor Projection: A New Solution Method for Dynamic General Equilibrium Models

29 Pages Posted: 20 Aug 2018

See all articles by Oren Levintal

Oren Levintal

Interdisciplinary Center (IDC) Herzliyah

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Date Written: August 2018

Abstract

This article presents a new solution method for dynamic equilibrium models. The solution is approximated by polynomials that zero the residual function and its derivatives at a given point x. The algorithm is essentially a type of projection but is significantly faster, since the problem is highly sparse and can be easily solved by a Newton solver. The obtained solution is accurate locally in the neighborhood of x. Importantly, a local solution can be obtained at any point of the state space. This makes it possible to solve models at points that are further away from the steady state.

Suggested Citation

Levintal, Oren, Taylor Projection: A New Solution Method for Dynamic General Equilibrium Models (August 2018). International Economic Review, Vol. 59, Issue 3, pp. 1345-1373, 2018. Available at SSRN: https://ssrn.com/abstract=3233205 or http://dx.doi.org/10.1111/iere.12306

Oren Levintal (Contact Author)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

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