Issues on Second Order Approximation and Optimal Policies

This page describes several issues on approximation at the second order and optimal policy determination. More precisely, this page aims at:

Replication of Schmitt-Grohé and Uribe (2004a,2007) papers

Schmitt-Grohé and Uribe (2004a)

Brief summary

The authors develop a DSGE model embedding imperfect competition and sticky prices. They compute Ramsey allocations and derive fiscal and monetary optimal decision paths. They compare simulated moments for key variables with different kinds of imperfection and different methods of simulation, namely log-quadratic and log-linear approximation for the baseline sticky-price model.

Outstanding points

Dynare code

mod file: sgu_jet2004.mod. This is a temporary file and still in progress. It should replicate results of Table 2 p. 212 in Schmitt-Groé and Uribe (2004a).

Schmitt-Grohé and Uribe (2007)

Dynare code

mod file: model_sgu07_welf.mod.

Illustration tools for nonlinear process

[To be done]

Welfare/decision rules approximation order consistency

[To be done]


Gomme, P., Klein, P. (2009) Second-order approximation of dynamic models without the use of ten- sors, Concordia University Working Paper, 09-004.

Lombardo, G., Sutherland, A. (2007) Computing Second-order-accurate Solutions for Rational Expectations Models Using Linear Solution Methods, Journal of Economic Dynamics and Control, 31(2), pp. 515–530.

Schmitt-Grohé, S., Uribe, M. (2004a) Optimal Fiscal and Monetary Policy under Sticky Prices, Journal of Economic Theory, 114, pp. 198-230. matlab codes

Schmitt-Grohé, S., Uribe, M. (2004b) Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function, Journal of Economic Dynamics and Control, 28, pp. 755-775. matlab codes

Schmitt-Grohé, S., Uribe, M. (2007) Optimal, Simple, and Implementable Monetary and Fiscal Rules, Journal of Monetary Economics, 54(6), pp. 1702-1725. Other version. Extended Version. matlab codes

DynareWiki: OrderTwo (last edited 2009-09-25 15:00:56 by ChristopheCahn)