Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/92960
Authors: 
Heiberger, Christopher
Klarl, Torben
Maußner, Alfred
Year of Publication: 
2012
Series/Report no.: 
Volkswirtschaftliche Diskussionsreihe, Institut für Volkswirtschaftslehre der Universität Augsburg 320
Abstract: 
Many algorithms that provide approximate solutions for dynamic stochastic general equilibrium (DSGE) models employ the generalized Schur factorization since it allows for a flexible formulation of the model and exempts the researcher from identifying equations that give raise to infinite eigenvalues. We show, by means of an example, that the policy functions obtained by this approach may differ from those obtained from the solution of a properly reduced system. As a consequence, simulation results may depend on the numeric values of parameters that are theoretically irrelevant. The source of this inaccuracy are ill-conditioned matrices as they emerge, e.g., in models with strong habits. Therefore, researchers should always cross-check their results and test the accuracy of the solution.
Subjects: 
DSGE Models
Schur Factorization
System Reduction
Accuracy of Solutions
JEL: 
C32
C63
E37
Document Type: 
Working Paper

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