PARAMETRIZED EXPECTATIONS ALGORITHM AND THE MOVING BOUNDS

Lilia Maliar and Serguei Maliar

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: Parametrized Expectation Algorithm (PEA) is a powerful tool for solving nonlinear stochastic dynamic models. However, it has an important shortcoming: it is not a contraction mapping technique and thus, does not guarantee finding the solution. We suggest a simple modification that enhances the convergence property of the algorithm. The idea is to rule out the possibility of (ex)implosive behavior by artificially restricting the simulated series within certain bounds. As the solution is refined along the iterations, the bounds are gradually removed. The modified PEA can systematically converge to the stationary solution starting from the nonstochastic steady state.

Keywords: Parametrized expectations algorithm; Nonlinear models (search for similar items in EconPapers)
Pages: 19 pages
Date: 2001-08
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Citations: View citations in EconPapers (2)

Published by Ivie

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http://www.ivie.es/downloads/docs/wpasad/wpasad-2001-23.pdf Fisrt version / Primera version, 2001 (application/pdf)

Related works:
Journal Article: Parameterized Expectations Algorithm and the Moving Bounds (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2001-23

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