Linear Time Iteration

Pontus Rendahl
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Pontus Rendahl: University of Cambridge, Faculty of Economics

No 330, Economics Series from Institute for Advanced Studies

Abstract: This paper proposes a simple iterative method – time iteration – to solve linear rational expectation models. I prove that this method converges to the solution with the smallest eigenvalues in absolute value, and provide the conditions under which this solution is unique. In particular, if conditions similar to those of Blanchard and Kahn (1980) are met, the procedure converges to the unique stable solution. Apart from its transparency and simplicity of implementation, the method provides a straightforward approach to solving models with less standard features, such as regime switching models. For large-scale problems the method is 10-20 times faster than existing solution methods.

Keywords: Linear systems; rational expectation models; fixed point iteration (search for similar items in EconPapers)
JEL-codes: C02 C61 C62 C63 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2017-09
New Economics Papers: this item is included in nep-ecm and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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https://irihs.ihs.ac.at/id/eprint/4351 First version, 2017 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ihs:ihsesp:330

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