Review of Economic Studies Vol. 92 No. 2 2025
Dynamic Perturbation
open access
Abstract
We present a novel algorithm called Dynamic Perturbation for solving large-scale macroeconomic models. Our approach involves computing first-order Taylor expansions of the policy functions along the entire equilibrium path. This method applies to a wide range of models and offers significantly higher accuracy than traditional perturbation approaches. Remarkably, even when utilising first-order approximations, our method can effectively handle models with strong nonlinearities and occasionally binding constraints, such as the zero lower bound.
- DOI
- 10.1093/restud/rdae037
- Volume
- 92
- Issue
- 2
- Pages
- 1157-1192
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref