Euler-equation methods for solving nonlinear dynamic models involve parameterizing some policy functions. We argue that in the typical macroeconomic model with valuable leisure, labor function is particularly convenient for parameterizing. This is because under the labor-function...

Parametrized Expectation Algorithm (PEA) is a powerful tool for solving nonlinear stochastic dynamic models. However, it has an important shortcoming: it is not a contraction mapping technique and thus, does not guarantee finding the solution. We suggest a simple modification that enhances the...