Benigno, Gianluca; Benigno, Pierpaolo; Nisticò, Salvatore - In: Journal of Economic Dynamics and Control 37 (2013) 7, pp. 1231-1247
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...