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NONLOCAL SOLUTIONS TO DYNAMIC EQUILIBRIUM MODELS: THE APPROXIMATE STABLE MANIFOLDS APPROACH

Published online by Cambridge University Press:  14 February 2018

Viktors Ajevskis
Viktors Ajevskis*
Affiliation:
Bank of Latvia
*
Address correspondence to: Viktors Ajevskis, Bank of Latvia, Kr. Valdemara Street, 2A, Riga LV-1050, Latvia; e-mail: Viktors.Ajevskis@bank.lv.
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Abstract

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This study presents a method for constructing a sequence of approximate solutions of increasing accuracy to general equilibrium models on nonlocal domains. The method is based on a technique originated from dynamical systems theory. The approximate solutions are constructed employing the Contraction Mapping Theorem and the fact that the solutions to general equilibrium models converge to a steady state. Under certain nonlocal conditions, the convergence of the approximate solutions to the true solution is proved. We also show that the proposed approach can be treated as a rigorous proof of convergence for the extended path algorithm in a class of nonlinear rational expectation models.

Keywords

Dynamic General EquilibriumExtended Path MethodDynamical SystemsStable Manifold

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 6 , September 2019, pp. 2544 - 2571
Copyright
Copyright © Cambridge University Press 2018 

Footnotes

I would like to thank an associate editor and a referee for the thoughtful comments and suggestions. The views expressed in this paper are the sole responsibility of the author and do not necessarily reflect the position of the Bank of Latvia.

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