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.

DOI: 10.1504/IJCEE.2010.037940

International Journal of Computational Economics and Econometrics, 2010 Vol.1 No.3/4, pp.309 - 316

Published online: 05 Jan 2011 *

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