Revisiting deterministic extended-path: a simple and accurate solution method for macroeconomic models

David Love

International Journal of Computational Economics and Econometrics, 2010, vol. 1, issue 3/4, 309-316

Abstract: The deterministic extended-path (EP) method for solving dynamic stochastic optimisation problems approximates conditional expectations instead of approximating a model's complex non-linear dynamics. For a benchmark real business cycle model we show that this straightforward approach provides excellent accuracy and uniform performance across the entire state space. Our implementation requires roughly four-fold more computer time than Galerkin projection, but the method has offsetting simplicity and generality.

Keywords: conditional expectations; computational optimisation; nonlinear dynamics; dynamic stochastic equilibrium; deterministic extended-path; macroeconomic modelling; stochastic optimisation. (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (4)

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