Computing second-order-accurate solutions for rational expectation models using linear solution methods

Giovanni Lombardo, Alan Sutherland

    Research output: Contribution to journalArticlepeer-review

    27 Citations (Scopus)

    Abstract

    This paper shows how to compute a second-order accurate solution of a non-linear rational expectation model using algorithms developed for the solution of linear rational expectation models. The result is a state-space representation for the realized values of the variables of the model. This state-space representation can easily be used to compute impulse responses as well as conditional and unconditional forecasts. (C) 2006 Elsevier B.V. All rights reserved.

    Original languageEnglish
    Pages (from-to)515-530
    Number of pages16
    JournalJournal of Economic Dynamics and Control
    Volume31
    Issue number2
    DOIs
    Publication statusPublished - Feb 2007

    Keywords

    • second-order approximation
    • solution methods for rational expectation models
    • POLICY

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