Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86974
Authors: 
Babus, Ana
de Vries, Casper G.
Year of Publication: 
2010
Series/Report no.: 
Tinbergen Institute Discussion Paper 10-081/2
Abstract: 
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 momentsfinite.
Subjects: 
Linearization
ARCH process
Real business cycles model
Stochastic difference equation
JEL: 
C22
C62
E32
Document Type: 
Working Paper

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