An efficient method of computing higher-order bond price perturbation approximations

This paper develops a fast method of computing arbitrary order perturbation approximations to bond prices in DSGE models. The procedure is implemented to third order where it can shorten the approximation process by more than 100 times. In a consumption-based endowment model with habits, it is further shown that a third-order perturbation solution is more accurate than the log-normal method and a procedure using consol bonds.

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Year of publication:	2011-03-15
Authors:	Andreasen, Andreasen , Martin ; Zabczyk, Pawel
Institutions:	Bank of England
Subject:	Perturbation method \| DSGE models \| habit model \| higher-order approximation

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Extent:	application/pdf
Series:	Bank of England working papers.
Type of publication:	Book / Working Paper
Notes:	The text is part of a series Bank of England working papers Number 416 38 pages
Classification:	C63 - Computational Techniques ; G12 - Asset Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005734875