Analysis of numerical errors

Adrian Peralta-Alva (aperaltaalva@gmail.com) and Manuel Santos

No 2012-062, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper provides a general framework for the quantitative analysis of stochastic dynamic models. We review convergence properties of some numerical algorithms and available methods to bound approximation errors. We then address convergence and accuracy properties of the simulated moments. Our purpose is to provide an asymptotic theory for the computation, simulation-based estimation, and testing of dynamic economies. The theoretical analysis is complemented with several illustrative examples. We study both optimal and non-optimal economies. Optimal economies generate smooth laws of motion defining Markov equilibria, and can be approximated by recursive methods with contractive properties. Non-optimal economies, however, lack existence of continuous Markov equilibria, and need to be computed by other algorithms with weaker approximation properties.

Keywords: Error analysis (Mathematics); Markov processes (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cmp and nep-dge
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Analysis of Numerical Errors (2012)
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