Management Science and Financial Engineering

The Korean Operations Research and Management Science Society (한국경영과학회)
권호 표지
DOI QR코드

DOI QR Code

Comparing Solution Methods for a Basic RBC Model

  • Joo, Semin (School of Economics, Sogang University)
  • Received : 2015.11.11
  • Accepted : 2015.11.27
  • Published : 2015.11.30
Download PDF
⟨ Previous Next ⟩

Abstract

This short article compares different solution methods for a basic RBC model (Hansen, 1985). We solve and simulate the model using two main algorithms: the methods of perturbation and projection, respectively. One novelty is that we offer a type of the hybrid method: we compute easily a second-order approximation to decision rules and use that approximation as an initial guess for finding Chebyshev polynomials. We also find that the second-order perturbation method is most competitive in terms of accuracy for standard RBC model.

Keywords

References

  1. Aruoba, S. B., J. Fernandez-Villaverde, and J. Rubio-Ramirez, "Comparing Solution Methods for Dynamic Equilibrium Economies," Journal of Economic Dynamics and Control 30 (2006), 2477-2508. https://doi.org/10.1016/j.jedc.2005.07.008
  2. Christiano, L. J., "Linear-Quadratic Approximation and Value-Function Iteration: A Comparison," Journal of Business Economics and Statistics 8 (1990), 99-113.
  3. Cooley, T. F., Frontiers of Business Cycle Research, Princeton University Press, 1995.
  4. Caldara, D., J. F. R.-R. Jesus Fernandez-Villaverde, and Y. Wen, "Computing DSGE models with recursive preferences and stochastic volatility," Review of Economic Dynamics 15 (2012), 188-206. https://doi.org/10.1016/j.red.2011.10.001
  5. Francois, G., Online Appendix to Disaster Risk and Business Cycles, 2011.
  6. Hansen, G. D., "Indivisible Labor and Business Cycles," Journal of Monetary Economics 16 (1985), 309-327. https://doi.org/10.1016/0304-3932(85)90039-X
  7. Harald, U., "A Toolkit for Analysing Nonlinear Dynamic Stochastic Models Easily," mimeo, 1999.
  8. Joo, S. and H. S. E. Kim, "Comparing Solution Methods for DMP-cum-RBC Models," mimeo, 2015.
  9. Judd, K. L., Numerical Methods in Economics, The MIT Press, 1998.
  10. Judd, K. L., "Projection Methods for Solving Aggregate Growth Models," Journal of Economic theory 58 (1992), 410-452. https://doi.org/10.1016/0022-0531(92)90061-L
  11. Schmitt-Grohe, S. and M. Uribe, "Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function," Journal of Economic Dynamics and Control 28 (2004), 755-775. https://doi.org/10.1016/S0165-1889(03)00043-5