Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098933 | Journal of Economic Dynamics and Control | 2010 | 8 Pages |
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 errors 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 moments finite.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Ana Babus, Casper G. de Vries,