Title: Revisiting deterministic extended-path: a simple and accurate solution method for macroeconomic models
Authors: David R.F. Love
Addresses: Department of Economics, Brock University, 500 Glenridge Ave., St. Catharines, ON, L2S 3A1, Canada
Abstract: The deterministic extended-path (EP) method for solving dynamic stochastic optimisation problems approximates conditional expectations instead of approximating a model|s complex non-linear dynamics. For a benchmark real business cycle model we show that this straightforward approach provides excellent accuracy and uniform performance across the entire state space. Our implementation requires roughly four-fold more computer time than Galerkin projection, but the method has offsetting simplicity and generality.
Keywords: conditional expectations; computational optimisation; nonlinear dynamics; dynamic stochastic equilibrium; deterministic extended-path; macroeconomic modelling; stochastic optimisation.
International Journal of Computational Economics and Econometrics, 2010 Vol.1 No.3/4, pp.309 - 316
Published online: 05 Jan 2011 *Full-text access for editors Access for subscribers Purchase this article Comment on this article