Linear Time Iteration

Rendahl, Pontus (September 2017) Linear Time Iteration. Former Series > Working Paper Series > IHS Economics Series 330, 21 p.

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This paper proposes a simple iterative method – time iteration – to solve linear rational expectation models. I prove that this method converges to the solution with the smallest eigenvalues in absolute value, and provide the conditions under which this solution is unique. In particular, if conditions similar to those of Blanchard and Kahn (1980) are met, the procedure converges to the unique stable solution. Apart from its transparency and simplicity of implementation, the method provides a straightforward approach to solving models with less standard features, such as regime switching models. For large-scale problems the method is 10-20 times faster than existing solution methods.

Item Type: IHS Series
Keywords: Linear systems; rational expectation models; fixed point iteration
Classification Codes (e.g. JEL): C02, C61, C62, C63
Research Units: Former Research Groups (until 2017) > Macroeconomics and Public Finance
Date Deposited: 26 Sep 2017 13:10
Last Modified: 27 Sep 2019 06:03
ISSN: 1605-7996

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