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COMPUTATION OF BUSINESS CYCLE MODELS: A COMPARISON OF NUMERICAL METHODS

Published online by Cambridge University Press:  01 November 2008

Burkhard Heer  and
Alfred Maußner
Burkhard Heer
Affiliation:
Free University of Bolzano-Bozen and CESifo
Alfred Maußner*
Affiliation:
University of Augsburg
*
Address correspondence to: Alfred Maußner, Universität Augsburg, D-86159 Augsburg, Germany; e-mail: alfred.maussner@wiwi.uni-augsburg.de.
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Abstract

We compare the numerical methods that are most widely applied in the computation of the standard business cycle model with flexible labor. The numerical techniques imply economically insignificant differences with regard to business cycle summary statistics. Furthermore, these results are robust with regard to the choice of the functional form of the utility function and the model's parameterization. In addition, the extended path approach, albeit time-consuming, and the Galerkin projection are found to be the most accurate methods, given that we have not used function approximations beyond the second degree.

Keywords

Log-LinearizationPerturbation MethodsProjection MethodsExtended PathValue Function IterationParameterized ExpectationsGenetic Search
Type
Articles
Information
Macroeconomic Dynamics , Volume 12 , Issue 5 , November 2008 , pp. 641 - 663
Copyright
Copyright © Cambridge University Press 2008

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