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Semi-Global Solutions to DSGE Models: Perturbation around a Deterministic Path

Viktors Ajevskis ()

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Abstract: This study proposes an approach based on a perturbation technique to construct global solutions to dynamic stochastic general equilibrium models (DSGE). The main idea is to expand a solution in a series of powers of a small parameter scaling the uncertainty in the economy around a solution to the deterministic model, i.e. the model where the volatility of the shocks vanishes. If a deterministic path is global in state variables, then so are the constructed solutions to the stochastic model, whereas these solutions are local in the scaling parameter. Under the assumption that a deterministic path is already known the higher order terms in the expansion are obtained recursively by solving linear rational expectations models with time-varying parameters. The present work also proposes a method rested on backward recursion for solving general systems of linear rational expectations models with time-varying parameters and determines the conditions under which the solutions of the method exist.

New Economics Papers: this item is included in nep-dge
Date: 2015-06
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http://arxiv.org/pdf/1506.02522 Latest version (application/pdf)

Related works:
Journal Article: Semi-global solutions to DSGE models: perturbation around a deterministic path (2017) Downloads
Working Paper: Semi-Global Solutions to DSGE Models: Perturbation around a Deterministic Path (2015) Downloads
Working Paper: Semi-Global Solutions to DSGE Models: Perturbation around a Deterministic Path (2014) Downloads
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