Nonlocal Solutions To Dynamic Equilibrium Models: The Approximate Stable Manifolds Approach

Macroeconomic Dynamics 2019
Viktors Ajevskis

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 Equilibrium, Extended Path Method, Dynamical Systems, Stable Manifold
DOI
10.1017/S1365100517000803
Hyperlink
https://www.cambridge.org/core/journals/macroeconomic-dynamics/article/nonlocal-solutions-to-dynamic-equilibrium-models-the-approximate-stable-manifolds-approach/4A450E2B8EB55A4D6EF536E350E3FE07

Ajevskis, V. Nonlocal Solutions To Dynamic Equilibrium Models: The Approximate Stable Manifolds Approach. Macroeconomic Dynamics, 2019, Vol. 23, No. 6, pp.2544-2571. ISSN 1365-1005. e-ISSN 1469-8056. Available from: doi:10.1017/S1365100517000803

Publication language
English (en)