Parameterized Expectations Algorithm: How to Solve for Labor Easily

Lilia Maliar and Serguei Maliar

Computational Economics, 2005, vol. 25, issue 3, 269-274

Abstract: Euler-equation methods for solving nonlinear dynamic models involve parameterizing some policy functions. We argue that in the typical macroeconomic model with valuable leisure, labor function is particularly convenient for parameterizing. This is because under the labor-function parameterization, the intratemporal first-order condition admits a closed-form solution, while under other parameterizations, there should be a numerical solution. In the context of a simulation-based parameterized expectations algorithm, we find that using the labor-function parameterization instead of the standard consumption-function parameterization reduces computational time by more than a factor of 10. Copyright Springer Science + Business Media, Inc. 2005

Keywords: Monte Carlo simulation; nonlinear models; numerical solution; parameterized expectations; PEA (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (13)

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Working Paper: PARAMETERIZED EXPECTATIONS ALGORITHM: HOW TO SOLVE FOR LABOR EASILY (2004)
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DOI: 10.1007/s10614-005-2224-9

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