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| Title: | | Existence and uniqueness of perturbation solutions to DSGE models  |
| Authors: | | Lan, Hong Meyer-Gohde, Alexander |
| Issue Date: | | 2012 |
| Series/Report no.: | | SFB 649 discussion paper 2012-015 |
| Abstract: | | We prove that standard regularity and saddle stability assumptions for linear approximations are sufficient to guarantee the existence of a unique solution for all undetermined coefficients of nonlinear perturbations of arbitrary order to discrete time DSGE models. We derive the perturbation using a matrix calculus that preserves linear algebraic structures to arbitrary orders of derivatives, enabling the direct application of theorems from matrix analysis to prove our main result. As a consequence, we provide insight into several invertibility assumptions from linear solution methods, prove that the local solution is independent of terms first order in the perturbation parameter, and relax the assumptions needed for the local existence theorem of perturbation solutions. |
| Subjects: | | perturbation matrix calculus DSGE solution methods Bézout theorem Sylvester equations |
| JEL: | | C61 C63 E17 |
| Document Type: | | Working Paper |
| Appears in Collections: | | SFB 649 Discussion Papers, HU Berlin
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