Straightforward Approximate Stochastic Equilibria for Nonlinear Rational Expectations Models

Denny Lie

No 523, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We present a new approach to the approximation of equilibrium solutions to nonlinear rational expectations models that applies to any order of approximation. The approach relies on a particular version of Taylor series approximations---the differential version---and on a scalar perturbation of the support of the entire history of shocks. The resulting solution for any order can always be directly cast in a linear state-space form, permitting the solution to be used for many practical applications such as forecasting, estimation, and computing impulse responses. Using the approach, we show that there cannot be multiple solutions in any order of approximation if the associated first-order approximate solution is determinate. Our approach can be used simply to verify key propositions of the earlier literature, to extend its range of applications, and to resolve puzzles left by it. While the paper only provides an explicit solution up to a third-order approximation, extensions to any higher order approximations are straightforward.

Date: 2015
New Economics Papers: this item is included in nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2015/paper_523.pdf (application/pdf)

Related works:
Working Paper: Straightforward approximate stochastic equilibria for nonlinear rational expectations models (2014)
Working Paper: Straightforward approximate stochastic equilibria for nonlinear Rational Expectations models (2014)
Working Paper: Straightforward approximate stochastic equilibria for nonlinear Rational Expectations models (2014)
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:red:sed015:523

Access Statistics for this paper

More papers in 2015 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().