Global Stochastic Properties of Dynamic Models and their Linear Approximations
September 2010
Research Paper
This publication is part of collection
| Related Files |
|---|
View PDF Version
(2010-0812.pdf, 0.2MB) |
The dynamic properties of micro based stochastic macro models are often analyzed through a linearization around the associated deterministic steady state. Recent literature has investigated the error made by such a deterministic approximation. Complementary to this literature we investigate how the linearization affects the stochastic properties of the original model. We consider a simple real business cycle model with noisy learning by doing. The solution has a stationary distribution that exhibits moment failure and has an unbounded support. The linear approximation, however, yields a stationary distribution with possibly a bounded support and all moments finite.
Keywords
Classifications using
Journal of Economic Literature (JEL) Classification System
- C62 : Existence and Stability Conditions of Equilibrium
- E32 : Business Fluctuations; Cycles
- C22 : Time-Series Models; Dynamic Quantile Regressions
Automatically Extracted Terms
- model
- distribution
- solution
- process
- equation
- approximation
- moment
- arch process
- property
- theorem
- capital
- volatility
- rbc model
- limit
- variable
- function
- order
- kesten
- equilibrium
- market portfolio
