Macroeconomic Dynamics


Inaugural Special IssueTopic: Computation and Estimation in Finance and EconomicsCoeditors: William A. Barnett, Lars Peter Hansen, Andrew Lo, and George Tauchen

SOLVING LARGE-SCALE RATIONAL-EXPECTATIONS MODELS


JESS GASPAR a1 1 and KENNETH L. JUDD a2c1
a1 University of Chicago
a2 Hoover Institute

We explore alternative approaches to numerical solutions of large rational-expectations models. We discuss and compare several current alternatives, focusing on the trade-offs in accuracy, space, and speed. The models range from representative-agent models with many goods and capital stocks, to models of heterogeneous agents with complete or incomplete asset markets. The methods include perturbation and projection methods. We show that these methods are capable of analyzing moderately large models even when we use only elementary, general-purpose numerical methods.


Key Words: Rational-Expectations Models; Representative Agents; Heterogeneous Agents; Computational Methods; Perturbation Methods; Projection Methods.

Correspondence:
c1 Address correspondence to: Ken Judd, Hoover Institution, Stanford, CA 94305, USA; e-mail: judd@hoover.stanford.edu.


Footnotes

1 The authors acknowledge the comments of Wouter den Haan, two anonymous referees, and conference participants. All remaining errors are the responsibility of the authors. Dr. Judd also acknowledges the financial support of NSF grant SBR-9309613.



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