2009 | OriginalPaper | Chapter
Perturbation Methods
Published in: Dynamic General Equilibrium Modeling
Publisher: Springer Berlin Heidelberg
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In the previous chapter we have seen that the solution of a DGE model with a representative agent is given by a set of policy functions that relate the agent's choice variables to the state variables that characterize the agent's economic environment. In this chapter we explore methods that use local information to obtain either a linear or a quadratic approximation of the agent's policy function.