Solving the Stochastic Growth Model by Parameterizing Expectations |
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| Authors: | Wouter J. den Haan Albert Marcet |
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| Affiliation: | Graduate School of Industrial Administration, Carnegie Mellon University , Pittsburgh , PA , 15213 |
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| Abstract: | This article describes a method for solving the one-good stochastic growth model by parameterizing the expectations part of the stochastic Euler equation. The conditional expectation is specified as a function of the state of the system, and the parameters of that function are estimated to solve the model. The article includes a discussion of how to find the parameters of the function and determine systematically the complexity of the functional form necessary to solve the model. |
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| Keywords: | Allais paradox Expected utility Fanning out Safety-belt usage |
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