Department of Economics and Business - Universitat Pompeu Fabra

Title:: Parameterized expectations approach; Some practical issues
Authors:: Albert Marcet and Guido Lorenzoni
Date:: June 1998
Abstract:: We discuss some practical issues related to the use of the Parameterized Expectations Approach (PEA) for solving non-linear stochastic dynamic models with rational expectations. This approach has been applied in models of macroeconomics, financial economics, economic growth, contract theory, etc. It turns out to be a convenient algorithm, especially when there is a large number of state variables and stochastic shocks in the conditional expectations. We discuss some practical issues having to do with the application of the algorithm, and we discuss a Fortran program for implementing the algorithm that is available through the internet. We discuss these issues in a battery of six examples.
Keywords:: Numerical algorithm, rational expectations, stochastic difference equations, simulation
JEL codes:: E10, C60, C63
Area of Research:: Macroeconomics and International Economics
Published in:: Computational Methods for the Study of Dynamic Economies, October 2001, pp. 143-172(30)

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