Dynamic perturbation - ePrints Soton

Mennuni, Alessandro, Rubio-Ramirez, Juan F. and Stepanchuk, Serhiy (2024) Dynamic perturbation. The Review of Economic Studies. (In Press)

Record type: Article

Abstract

We present a novel algorithm called Dynamic Perturbation for solving large-scale macroeconomic models. Our approach involves computing first-order Taylor expansions of the policy functions along the entire equilibrium path. This method applies to a wide range of models and offers significantly higher accuracy than traditional perturbation approaches. Remarkably, even when utilizing first-order approximations, our method can effectively handle models with strong nonlinearities and occasionally binding constraints, such as the zero lower bound.

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DynamicPerturbation_REStud - Accepted Manuscript

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DynamicPerturbation_REStud

Restricted to Repository staff only

Available under License University of Southampton Accepted Manuscript Licence.

Request a copy