Computing DSGE models with recursive preferences and stochastic volatility

Dario Caldara, Jesus Fernandez-Villaverde, Juan F Rubio-Ramirez and Wen Yao

No 2012-04, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper compares different solution methods for computing the equilibrium of dynamic stochastic general equilibrium (DSGE) models with recursive preferences such as those in Epstein and Zin (1989 and 1991) and stochastic volatility. Models with these two features have recently become popular, but we know little about the best ways to implement them numerically. To fill this gap, we solve the stochastic neoclassical growth model with recursive preferences and stochastic volatility using four different approaches: second- and third-order perturbation, Chebyshev polynomials, and value function iteration. We document the performance of the methods in terms of computing time, implementation complexity, and accuracy. Our main finding is that perturbations are competitive in terms of accuracy with Chebyshev polynomials and value function iteration while being several orders of magnitude faster to run. Therefore, we conclude that perturbation methods are an attractive approach for computing this class of problems.

Date: 2012
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-cwa, nep-dge, nep-fdg, nep-mac, nep-ore and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (93)

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/2012/201204/201204abs.html (text/html)
http://www.federalreserve.gov/pubs/feds/2012/201204/201204pap.pdf (application/pdf)

Related works:
Journal Article: Computing DSGE Models with Recursive Preferences and Stochastic Volatility (2012)
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:fip:fedgfe:2012-04

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().