On the numerical accuracy of first-order approximate solutions to DSGE models

  • Many algorithms that provide approximate solutions for dynamic stochastic general equilibrium (DSGE) models employ the QZ factorization because it allows a flexible formulation of the model and exempts the researcher from identifying equations that give raise to infinite eigenvalues. We show, by means of an example, that the policy functions obtained by this approach may differ from both the solution of a properly reduced system and the solution obtained from solving the system of nonlinear equations that arises from applying the implicit function theorem to the model's equilibrium conditions. As a consequence, simulation results may depend on the specific algorithm used and on the numerical values of parameters that are theoretically irrelevant. The sources of this inaccuracy are ill-conditioned matrices as they emerge, e.g., in models with strong habits. Researchers should be aware of those strange effects, and we propose several ways to handle them.

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Metadaten
Author:Alfred MaußnerGND, Christopher HeibergerGND, Torben Klarl
URN:urn:nbn:de:bvb:384-opus4-380071
Frontdoor URLhttps://opus.bibliothek.uni-augsburg.de/opus4/38007
ISSN:1365-1005OPAC
Parent Title (English):Macroeconomic Dynamics
Type:Article
Language:English
Year of first Publication:2017
Publishing Institution:Universität Augsburg
Release Date:2018/04/06
Volume:21
Issue:7
First Page:1811
Last Page:1826
Note:
Dieser Beitrag ist mit Zustimmung des Rechteinhabers aufgrund einer (DFG-geförderten) Allianz- bzw. Nationallizenz frei zugänglich.
DOI:https://doi.org/10.1017/S1365100515000966
Institutes:Wirtschaftswissenschaftliche Fakultät
Wirtschaftswissenschaftliche Fakultät / Institut für Volkswirtschaftslehre
Wirtschaftswissenschaftliche Fakultät / Institut für Volkswirtschaftslehre / Lehrstuhl für Empirische Makroökonomik (Maußner)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):Deutsches Urheberrecht