This paper compares different solution methods for computing the equilibrium of dynamic stochastic general equilibrium (DSGE) models with rare disasters along the lines of those proposed by Rietz (1988), Barro (2006), Gabaix (2012), and Gourio (2012). DSGE models with rare disasters require...

Value function iteration is one of the standard tools for the solution of dynamic general equilibrium models if the dimension of the state space is one ore two. We consider three kinds of models: the deterministic and the stochastic growth model and a simple heterogenous agent model. Each model...

By simplifying the computational tasks and by providing step-by-step explanations of the procedures required to study a linear dynamic rational expectations (LDRE) model, this paper and the accompanying “LDRE Toolbox” of Matlab functions guide a researcher with almost no experience in...

This paper compares different solution methods for computing the equilibrium of dynamic stochastic general equilibrium (DSGE) models with recursive preferences such as those in Epstein and Zin (1989 and 1991) and stochastic volatility. Models with these two features have recently become popular,...

This paper compares different solution methods for computing the equilibrium of dynamic stochastic general equilibrium (DSGE) models with rare disasters along the lines of those proposed by Rietz (1988), Barro (2006), Gabaix (2012), and Gourio (2012). DSGE models with rare disasters require...

This paper presents strong empirical evidence that the observed heterogeneity of output volatility across countries and over time is partly endogenous. In particular, based on a closed-form solution we obtain a (long-run) equilibrium relationship between taxes and output volatility in the...

This paper introduces a new algorithm, the recursive upwind Gauss–Seidel method, andapplies it to solve a standard stochastic growth model in which the technology shocksexhibit heteroskedasticity. This method exploits the fact that the equations definingequilibrium can be viewed as a set of...

We introduce a novel simulated certainty equivalent approximation (SCEQ) method for solving dynamic stochastic problems. Our examples show that SCEQ can quickly solve high-dimensional finite- or infinite-horizon, stationary or non- stationary dynamic stochastic problems with hundreds of state...

This paper aims to investigate the effects of the introduction of an active welfare state measure in France, the Revenu de Solidarité Active, which replaced the old system of social minima. By using a micro-macro simulation model, we characterize the effects on households' disposable income,...