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A robust method for simulating forward-looking models

✍ Scribed by John Armstrong; Richard Black; Douglas Laxton; David Rose

Publisher
Elsevier Science
Year
1998
Tongue
English
Weight
838 KB
Volume
22
Category
Article
ISSN
0165-1889

No coin nor oath required. For personal study only.

✦ Synopsis

Methods of computing the type II iterations involved in extended path algorithms for the solution of economic models with forward-looking expectations are described. Particular attention is directed at a method involving the application of a Newton algorithm to a 'stacked' equation system that includes a separate equation for each endogeneous variable at each time point. Analytical results that establish convergence properties for linear models are presented.

Both the analytical results and empirical comparisons of the stacked Newton method and the popular Fair-Taylor approach indicate that the stacked Newton method is a viable alternative for medium-sized economic models.

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