Solving linear DSGE models with Newton methods

Alexander Meyer-Gohde and Johanna Saecker

No 174, IMFS Working Paper Series from Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)

Abstract: This paper presents and compares Newton-based methods from the applied mathematics literature for solving the matrix quadratic that underlies the recursive solution of linear DSGE models. The methods are compared using nearly 100 different models from the Macroeconomic Model Data Base (MMB) and different parameterizations of the monetary policy rule in the medium-scale New Keynesian model of Smets and Wouters (2007) iteratively. We find that Newton-based methods compare favorably in solving DSGE models, providing higher accuracy as measured by the forward error of the solution at a comparable computation burden. The methods, however, suffer from their inability to guarantee convergence to a particular, e.g. unique stable, solution, but their iterative procedures lend themselves to refining solutions either from different methods or parameterizations.

Keywords: Numerical accuracy; DSGE; Solution methods (search for similar items in EconPapers)
JEL-codes: C61 C63 E17 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Solving linear DSGE models with Newton methods (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:imfswp:174

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