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Easy EZ in DSGE

Author

Listed:
  • Harald Uhlig

    (University of Chicago)

Abstract

Epstein-Zin preferences (or ``EZ'' preferences) have become increasingly popular in recent asset pricing work. Dynamic stochastic general equilibrium (DSGE) models which feature Epstein-Zin preferences are typically considered technically challenging, often thought to require sophisticated numerical solution methods to solve them and considerable additional thought to understand them. The purpose of this paper is to make DSGE modeling with Epstein-Zin preferences easy, relying on log-linearization to the equations characterizing the equilibrium dynamics and exploiting log-normality for asset pricing. The paper therefore provides a benchmark, from which to explore and understand the added benefit of higher-order approximations.

Suggested Citation

  • Harald Uhlig, 2010. "Easy EZ in DSGE," 2010 Meeting Papers 111, Society for Economic Dynamics.
    • Handle: RePEc:red:sed010:111
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    References listed on IDEAS

    as
    1. Trabandt, Mathias & Uhlig, Harald, 2006. "How far are we from the slippery slope? The Laffer curve revisited," SFB 649 Discussion Papers 2006-023, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
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    4. Fatih Guvenen, 2009. "A Parsimonious Macroeconomic Model for Asset Pricing," Econometrica, Econometric Society, vol. 77(6), pages 1711-1750, November.
    5. Ralph S.J. Koijen & Jules H. van Binsbergen & Juan F. Rubio-Ramírez & Jesus Fernandez-Villaverde, 2008. "Likelihood Estimation of DSGE Models with Epstein-Zin Preferences," 2008 Meeting Papers 1099, Society for Economic Dynamics.
    6. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
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    8. TallariniJr., Thomas D., 2000. "Risk-sensitive real business cycles," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 507-532, June.
    9. Marimon, Ramon & Scott, Andrew (ed.), 1999. "Computational Methods for the Study of Dynamic Economies," OUP Catalogue, Oxford University Press, number 9780198294979.
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    11. Trabandt, Mathias & Uhlig, Harald, 2006. "How Far Are We From the Slippery Slope? The Laffer Curve Revisited," CEPR Discussion Papers 5657, C.E.P.R. Discussion Papers.
    12. Charlotta Groth & Hashmat Khan, 2007. "Investment adjustment costs: evidence from UK and US industries," Bank of England working papers 332, Bank of England.
    13. Lettau, Martin & Uhlig, Harald, 2002. "The Sharpe Ratio And Preferences: A Parametric Approach," Macroeconomic Dynamics, Cambridge University Press, vol. 6(2), pages 242-265, April.
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    3. Zhang, Xiang, 2020. "Leisure and long-run risks: An empirical evaluation on value premium puzzle," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).

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