Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/113057 
Year of Publication: 
2015
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2015: Ökonomische Entwicklung - Theorie und Politik - Session: Economic Theory No. A20-V1
Publisher: 
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft
Abstract: 
I construct risk-sensitive approximations of policy functions of DSGE models around the stochastic steady state and ergodic mean that are linear in the state variables. The method requires only the solution of linear equations using standard perturbation output to construct the approximation and is uniformly more accurate than standard linear approximations. In an application to real business cycles with recursive utility and growth risk, the approximation successfully estimates risk aversion using the Kalman filter, where a standard linear approximation provides no information and alternative methods require computationally intensive procedures such as particle filters. At the posterior mode, the model s market price of risk is brought in line with the postwar US Sharpe ratio without compromising the fit of the macroeconomy.
JEL: 
C61
C63
E17
Document Type: 
Conference Paper

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