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TAYLOR PROJECTION: A NEW SOLUTION METHOD FOR DYNAMIC GENERAL EQUILIBRIUM MODELS
Author(s) -
Levintal Oren
Publication year - 2018
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12306
Subject(s) - projection (relational algebra) , solver , state space , mathematics , function (biology) , space (punctuation) , point (geometry) , state (computer science) , residual , zero (linguistics) , taylor series , projection method , mathematical optimization , newton's method , computer science , mathematical analysis , dykstra's projection algorithm , algorithm , physics , geometry , nonlinear system , linguistics , statistics , philosophy , quantum mechanics , evolutionary biology , biology , operating system
Abstract This article presents a new solution method for dynamic equilibrium models. The solution is approximated by polynomials that zero the residual function and its derivatives at a given point x 0 . The algorithm is essentially a type of projection but is significantly faster, since the problem is highly sparse and can be easily solved by a Newton solver. The obtained solution is accurate locally in the neighborhood of x 0 . Importantly, a local solution can be obtained at any point of the state space. This makes it possible to solve models at points that are further away from the steady state.