Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264979 
Year of Publication: 
2022
Series/Report no.: 
IMFS Working Paper Series No. 174
Publisher: 
Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS), Frankfurt a. M.
Abstract: 
This paper presents and compares Newton-based methods from the applied mathematics literature for solving the matrix quadratic that underlies the recursive solution of linear DSGE models. The methods are compared using nearly 100 different models from the Macroeconomic Model Data Base (MMB) and different parameterizations of the monetary policy rule in the medium-scale New Keynesian model of Smets and Wouters (2007) iteratively. We find that Newton-based methods compare favorably in solving DSGE models, providing higher accuracy as measured by the forward error of the solution at a comparable computation burden. The methods, however, suffer from their inability to guarantee convergence to a particular, e.g. unique stable, solution, but their iterative procedures lend themselves to refining solutions either from different methods or parameterizations.
Subjects: 
Numerical accuracy
DSGE
Solution methods
JEL: 
C61
C63
E17
Document Type: 
Working Paper

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