Revisiting deterministic extended-path: a simple and accurate solution method for macroeconomic models
by David R.F. Love
International Journal of Computational Economics and Econometrics (IJCEE), Vol. 1, No. 3/4, 2010

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.

Online publication date: Wed, 05-Jan-2011

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