Benigno, Gianluca, Benigno, Pierpaolo and Nisticò, Salvatore (2013) Second-order approximation of dynamic models with time-varying risk. Journal of Economic Dynamics and Control, 37 (7). pp. 1231-1247. ISSN 0165-1889
Full text not available from this repository.Abstract
This paper provides first and second-order approximation methods for the solution of non-linear dynamic stochastic models in which the exogenous state variables follow conditionally linear stochastic processes displaying time-varying risk. The first-order approximation is consistent with a conditionally linear model in which risk is still time-varying but has no distinct role - separated from the primitive stochastic disturbances - in influencing the endogenous variables. The second-order approximation of the solution, instead, is sufficient to get this role. Moreover, risk premia, evaluated using only a first-order approximation of the solution, will be also time varying.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.journals.elsevier.com/journal-of-econom... |
| Additional Information: | © 2013 Elsevier B.V. |
| Divisions: | Economics |
| Subjects: | H Social Sciences > HB Economic Theory |
| JEL classification: | C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C63 - Computational Techniques E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation |
| Date Deposited: | 09 May 2013 15:55 |
| Last Modified: | 14 Sep 2024 05:49 |
| Funders: | European Research Council |
| URI: | http://eprints.lse.ac.uk/id/eprint/49849 |
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