Solving nonlinear rational expectations models by parameterized expectations: convergence to stationary solutions

Albert Marcet and David Marshall

No 91, Discussion Paper / Institute for Empirical Macroeconomics from Federal Reserve Bank of Minneapolis

Abstract: This paper develops the Parameterized Expectations Approach (PEA) for solving nonlinear dynamic stochastic models with rational expectations. The method can be applied to a variety of models, including models with strong nonlinearities, sub-optimal equilibria, and many continuous state variables. In this approach, the conditional expectations in the equilibrium conditions are approximated by finite-dimensional classes of functional forms. The approach is highly efficient computationally because it incorporates endogenous oversampling and Monte-Carlo integration, and it does not impost a discrete grid on the state variables or the stochastic shocks. We prove that PEA can approximate the correct solution with arbitrary accuracy on the ergodic set by increasing the size of the Monte-Carlo simulations and the dimensionality of the approximating family of functions.

Keywords: Rational expectations (Economic theory); Econometric models (search for similar items in EconPapers)
Date: 1994
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (47)

Downloads: (external link)
http://www.minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=89 (application/pdf)
http://www.minneapolisfed.org/research/DP/DP91.pdf

Related works:
Working Paper: Solving nonlinear rational expectations models by parameterized expectations: convergence to stationary solutions (1994)
Working Paper: Solving nonlinear rational expectations models by parameterized expectations: Convergence to stationary solutions (1994)
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:fedmem:91

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Discussion Paper / Institute for Empirical Macroeconomics from Federal Reserve Bank of Minneapolis Contact information at EDIRC.
Bibliographic data for series maintained by Jannelle Ruswick ( this e-mail address is bad, please contact ).