TY  - JOUR
AU  - Caldara,Dario
AU  - Fernández-Villaverde,Jesús
AU  - Rubio-Ramírez,Juan F.
AU  - Yao,Wen
TI  - Computing DSGE Models with Recursive Preferences
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15026
PY  - 2009
Y2  - June 2009
UR  - http://www.nber.org/papers/w15026
L1  - http://www.nber.org/papers/w15026.pdf
N1  - Author contact info:
Dario Caldara
Federal Reserve Board
20th Street and Constitution Avenue, NW, 
Washington, DC 20551
E-Mail: dario.caldara@frb.gov

Jesus Fernandez-Villaverde
University of Pennsylvania
160 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
Tel: 267/307-1068
E-Mail: jesusfv@econ.upenn.edu

Juan Rubio-Ramírez
Duke University
P.O. Box 90097
Durham, NC 27708
Tel: 9196601865
E-Mail: juan.rubio-ramirez@duke.edu

Yao Wen
University of Pennsylvania
160 McNeil
Philadelphia, PA 19104
E-Mail: wenyao@econ.upenn.edu
AB  - This paper compares different solution methods for computing the equilibrium of dynamic stochastic general equilibrium (DSGE) models with recursive preferences such as those in Epstein and Zin (1989 and 1991). Models with these preferences have recently become popular, but we know little about the best ways to implement them numerically. To fill this gap, we solve the stochastic neoclassical growth model with recursive preferences using four different approaches: second- and third-order perturbation, Chebyshev polynomials, and value function iteration. We document the performance of the methods in terms of computing time, implementation complexity, and accuracy. Our main finding is that a third-order perturbation is competitive in terms of accuracy with Chebyshev polynomials and value function iteration, while being an order of magnitude faster to run. Therefore, we conclude that perturbation methods are an attractive approach for computing this class of problems.
ER  -