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 conditionally linear model in which risk is still time-varying but has no distinct role – separated from the primitive stochastic disturbances – in influencing the endogenous variables. The second-order approximation of the solution, instead, is sufficient to get this role. Moreover, risk premia, evaluated using only a first-order approximation of the solution, will be also time varying.
Second-Order Approximation of Dynamic Models with Time-Varying Risk / Benigno, Pierpaolo; G., Benigno; S., Nisticò; Nistico', Salvatore. - In: JOURNAL OF ECONOMIC DYNAMICS & CONTROL. - ISSN 0165-1889. - 37:7(2013), pp. 1231-1247. [http://dx.doi.org/10.1016/j.jedc.2013.03.007]
Titolo: | Second-Order Approximation of Dynamic Models with Time-Varying Risk | |
Autori: | ||
Data di pubblicazione: | 2013 | |
Rivista: | ||
Citazione: | Second-Order Approximation of Dynamic Models with Time-Varying Risk / Benigno, Pierpaolo; G., Benigno; S., Nisticò; Nistico', Salvatore. - In: JOURNAL OF ECONOMIC DYNAMICS & CONTROL. - ISSN 0165-1889. - 37:7(2013), pp. 1231-1247. [http://dx.doi.org/10.1016/j.jedc.2013.03.007] | |
Handle: | http://hdl.handle.net/11385/72263 | |
Appare nelle tipologie: | 01.1 - Articolo su rivista (Article) |