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Solving non-linear stochastic models by parameterizing expectations: An application to asset pricing with production

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dc.contributor.author Marcet, Albert
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
dc.date.accessioned 2017-07-26T10:50:16Z
dc.date.available 2017-07-26T10:50:16Z
dc.date.issued 1991-07-01
dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=5
dc.identifier.uri http://hdl.handle.net/10230/20796
dc.description.abstract A new algorithm called the parameterized expectations approach (PEA) for solving dynamic stochastic models under rational expectations is developed and its advantages and disadvantages are discussed. This algorithm can, in principle, approximate the true equilibrium arbitrarily well. Also, this algorithm works from the Euler equations, so that the equilibrium does not have to be cast in the form of a planner's problem. Monte--Carlo integration and the absence of grids on the state variables, cause the computation costs not to go up exponentially when the number of state variables or the exogenous shocks in the economy increase. \\ As an application we analyze an asset pricing model with endogenous production. We analyze its implications for time dependence of volatility of stock returns and the term structure of interest rates. We argue that this model can generate hump--shaped term structures.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 5
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.title Solving non-linear stochastic models by parameterizing expectations: An application to asset pricing with production
dc.type info:eu-repo/semantics/workingPaper
dc.date.modified 2017-07-23T02:00:12Z
dc.subject.keyword Macroeconomics and International Economics
dc.rights.accessRights info:eu-repo/semantics/openAccess


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