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  • Open Daily: 10am - 10pm
    Alley-side Pickup: 10am - 7pm

    3038 Hennepin Ave Minneapolis, MN
    612-822-4611

Open Daily: 10am - 10pm | Alley-side Pickup: 10am - 7pm
3038 Hennepin Ave Minneapolis, MN
612-822-4611
Finance and Economics Discussion Series: Computing Dsge Models with Recursive Preferences and Stochastic Volatility

Finance and Economics Discussion Series: Computing Dsge Models with Recursive Preferences and Stochastic Volatility

Caldara, Dario
United States Federal Reserve Board
Et Al

Paperback

General Political Science

ISBN10: 1288697384
ISBN13: 9781288697380
Publisher: Bibliogov
Published: Feb 4 2013
Pages: 48
Weight: 0.23
Height: 0.10 Width: 7.44 Depth: 9.69
Language: English
This paper compares different solution methods for computing the equilibrium of dynamic stochastic general equilibrium (DSGE) models with recursive preferences such as those in Epstein and Zin (1989 and 1991) and stochastic volatility. Models with these two features have recently become popular, but we know little about the best ways to implement them numerically. To fill this gap, we solve the stochastic neoclassical growth model with recursive preferences and stochastic volatility using four different approaches: second- and third-order perturbation, Chebyshev polynomials, and value function iteration. We document the performance of the methods in terms of computing time, implementation complexity, and accuracy. Our main finding is that perturbations are competitive in terms of accuracy with Chebyshev polynomials and value function iteration while being several orders of magnitude faster to run. Therefore, we conclude that perturbation methods are an attractive approach for computing this class of problems.

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