Exact expectations - Efficient calculation of DSGE models

Fabian Goessling

No 5416, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster

Abstract: Global solution methods for dynamic stochastic general equilibrium (DSGE) models are acurrate but computationally expensive. In particular computing conditional expectations for numerous points in the state-space leads to significant complexity. In the present paper, I show how to remove the majority of calculations required for the evaluation of conditional expectations. Therefore I replace the approximated conditional expectation obtained by e.g. quadrature rules with an exact expectation. Further, similar to Judd et al. (2011), the required integrals are evaluated at the initial stage of the algorithm. I adopt Chebyshev polynomials as basis functions and provide a general framework. Subsequently, I adapt the technique to the neoclassical model with recursive utility and labor choice.

Keywords: Profection; Precomputation; DSGE; Complexity reduction (search for similar items in EconPapers)
JEL-codes: C63 C68 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2016-09
New Economics Papers: this item is included in nep-cmp and nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:cqe:wpaper:5416

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