Computation of Business Cycle Models. A Comparison of Numerical Methods

28 Pages Posted: 12 Jul 2004

See all articles by Burkhard Heer

Burkhard Heer

University of Augsburg; CESifo (Center for Economic Studies and Ifo Institute)

Alfred Maussner

University of Augsburg - Faculty of Business and Economics

Date Written: June 2004

Abstract

We compare the numerical methods that are most widely applied in the computation of the standard business cycle model with flexible labor. The numerical techniques imply economically insignificant differences with regard to business cycle summary statistics except for the volatility of investment. Furthermore, these results are robust with regard to the choice of the functional form of the utility function and the model's parameterization. In conclusion, the simplest and fastest method, the log-linearization of the model around the steady state, is found to be most convenient and appropriate for the standard business cycle model.

Keywords: log-linearization, projection methods, extended path, value function iteration, parameterized expectations, genetic search

JEL Classification: C68, C63, E32

Suggested Citation

Heer, Burkhard and Maussner, Alfred, Computation of Business Cycle Models. A Comparison of Numerical Methods (June 2004). CESifo Working Paper Series No. 1207. Available at SSRN: https://ssrn.com/abstract=556699

Burkhard Heer (Contact Author)

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Alfred Maussner

University of Augsburg - Faculty of Business and Economics ( email )

Universitaetsstr. 16
86135 Augsburg
Germany
+49 821 598 4187 (Phone)
+49 821 598 4231 (Fax)

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