Template-Type: ReDIF-Paper 1.0
Author-Name: Viktors Ajevskis
Author-X-Name-First: Viktors
Author-X-Name-Last: Ajevskis
Author-Workplace-Name: Bank of Latvia
Title: Semi-Global Solutions to DSGE Models: Perturbation around a Deterministic Path 
Abstract: This study presents an approach based on a perturbation technique to construct global solutions to dynamic stochastic general equilibrium models (DSGE). The main idea is to expand a solution in a series of powers of a small parameter scaling the uncertainty in the economy around a solution to the deterministic model, i.e. the model where the volatility of the shocks vanishes. If a deterministic path is global in state variables, then so are the constructed solutions to the stochastic model, whereas these solutions are local in the scaling parameter. Under the assumption that a deterministic path is already known the higher order terms in the expansion are obtained recursively by solving linear rational expectations models with timevarying parameters. The present work proposes a method which rests on backward recursion for solving this type of models.
Creation-Date: 2014-07-04
File-URL: https://www.bank.lv/images/stories/pielikumi/publikacijas/petijumi/WP_1_2014.pdf
File-Format: Application/pdf
File-URL: https://www.macroeconomics.lv/sites/default/files/wp_1_2014.pdf
File-Format: Application/pdf
Number: 2014/01
Classification-JEL: C61, C62, C63, D50, D58
Keywords: DSGE, perturbation method, rational expectations models with timevarying parameters, asset pricing model
X-File-Ref: https://repec.bank.lv/refs/wpaper201401.txt
Handle: RePEc:ltv:wpaper:201401