Nonlinear and stable perturbation-based approximations

Wouter J. Den Haan and Joris De Wind

Journal of Economic Dynamics and Control, 2012, vol. 36, issue 10, 1477-1497

Abstract: Users of regular higher-order perturbation approximations can face two problems: policy functions with odd oscillations and simulated data that explode. We propose a perturbation-based approximation that (i) does not have odd shapes, (ii) generates stable time paths, and (iii) avoids the drawbacks that hamper the pruned perturbation approach of Kim et al. (2008). For models with nontrivial nonlinearities, we find that our alternative and the pruned perturbation approximations give a good qualitative insight in the nonlinear aspects of the true solution, but can differ from the true solution in some quantitative aspects, especially during severe peaks and troughs.

Keywords: Accuracy; Nonlinear numerical solutions (search for similar items in EconPapers)
JEL-codes: C63 E21 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (50)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188912001078
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:36:y:2012:i:10:p:1477-1497

DOI: 10.1016/j.jedc.2012.05.001

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().