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Approximate solutions to dynamic models: Linear methods

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  • Uhlig, Harald

Abstract

Linear Methods are often used to compute approximate solutions to dynamic models, as these models often cannot be solved analytically. Linear methods are very popular, as they can easily be implemented. Also, they provide a useful starting point for understanding more elaborate numerical methods. It shall be described here first for the example of a simple real business cycle model, including how to easily generate the log-linearized equations needed before solving the linear system. For a general framework, formulas are provided for calculating the recursive law of motion. The algorithm described here is implemented with the toolkit programs available per http://www.wiwi.hu-berlin.de/wpol/html/toolkit.htm .

Suggested Citation

  • Uhlig, Harald, 2006. "Approximate solutions to dynamic models: Linear methods," SFB 649 Discussion Papers 2006-030, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2006-030
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    References listed on IDEAS

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    1. Anderson, Evan W. & McGrattan, Ellen R. & Hansen, Lars Peter & Sargent, Thomas J., 1996. "Mechanics of forming and estimating dynamic linear economies," Handbook of Computational Economics, in: H. M. Amman & D. A. Kendrick & J. Rust (ed.), Handbook of Computational Economics, edition 1, volume 1, chapter 4, pages 171-252, Elsevier.
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    More about this item

    Keywords

    numerical methods; linear solution method; loglinearization; dynamic stochastic general equilibrium methods; recursive law of motion;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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