An efficient method of computing higher-order bond price perturbation approximations

Martin Andreasen and Pawel Zabczyk

No 416, Bank of England working papers from Bank of England

Abstract: This paper develops a fast method of computing arbitrary order perturbation approximations to bond prices in DSGE models. The procedure is implemented to third order where it can shorten the approximation process by more than 100 times. In a consumption-based endowment model with habits, it is further shown that a third-order perturbation solution is more accurate than the log-normal method and a procedure using consol bonds.

Keywords: Perturbation method; DSGE models; habit model; higher-order approximation. (search for similar items in EconPapers)
JEL-codes: C63 G12 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2011-03-15
New Economics Papers: this item is included in nep-cba, nep-cmp and nep-dge
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0416

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