Calculating and Using Second Order Accurate Solutions of Discrete Time Dynamic Equilibrium Models

26 Pages Posted: 13 Jan 2004

See all articles by Jinill Kim

Jinill Kim

Korea University

Sunghyun Henry Kim

Sungkyunkwan University - Department of Economics

Christopher A. Sims

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Ernst Schaumburg

Federal Reserve Banks - Federal Reserve Bank of New York

Date Written: August 3, 2003

Abstract

We describe an algorithm for calculating second order approximations to the solutions to nonlinear stochastic rational expectation models. The paper also explains methods for using such an approximate solution to generate forecasts, simulated time paths for the model, and evaluations of expected welfare differences across different versions of a model. The paper gives conditions for local validity of the approximation that allow for disturbance distributions with unbounded support and allow for non-stationarity of the solution process.

Keywords: Solving dynamic equilibrium models, second order accurate solution

JEL Classification: E00, C63

Suggested Citation

Kim, Jinill and Kim, Sunghyun Henry and Sims, Christopher A. and Schaumburg, Ernst, Calculating and Using Second Order Accurate Solutions of Discrete Time Dynamic Equilibrium Models (August 3, 2003). Available at SSRN: https://ssrn.com/abstract=484443 or http://dx.doi.org/10.2139/ssrn.484443

Jinill Kim (Contact Author)

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701

Sunghyun Henry Kim

Sungkyunkwan University - Department of Economics ( email )

110-745 Seoul
Korea

Christopher A. Sims

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ernst Schaumburg

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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