PARAMETERIZED EXPECTATIONS ALGORITHM: HOW TO SOLVE FOR LABOR EASILY

Lilia Maliar and Serguei Maliar

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

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 ten.

Keywords: Nonlinear models; Parameterized expectations; PEA; Monte Carlo simulation; Numerical solution (search for similar items in EconPapers)
JEL-codes: C6 C63 C68 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2004-10
New Economics Papers: this item is included in nep-cmp, nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Parameterized Expectations Algorithm: How to Solve for Labor Easily (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2004-40

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