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Handbook of Computational Economics by Kenneth L. Judd, Karl Schmedders

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Chapter 9

Analysis of Numerical Errors

Adrian Peralta-Alvaa and Manuel S. Santosb,    aResearch Division, Federal Reserve Bank of Saint Louis, St Louis, MO, USA,    bDepartment of Economics, University of Miami, Coral Gables, FL, USA

Abstract

This paper provides a general framework for the quantitative analysis of stochastic dynamic models. We review the convergence properties of some numerical algorithms and available methods to bound approximation errors. We then address the convergence and accuracy properties of the simulated moments. We study both optimal and non-optimal economies. Optimal economies generate smooth laws of motion defining Markov equilibria, and can be approximated by recursive methods with contractive properties. Non-optimal ...

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