01842cam a22002657 4500001000700000003000500007005001700012008004100029100002300070245015500093260006600248490004200314500001900356520068800375530006101063538007201124538003601196690010101232700002401333700002501357710004201382830007701424856003801501856003701539w16633NBER20160824011549.0160824s2010 mau||||fs|||| 000 0 eng d1 aBenigno, Gianluca.10aSecond-Order Approximation of Dynamic Models with Time-Varying Riskh[electronic resource] /cGianluca Benigno, Pierpaolo Benigno, Salvatore Nisticò. aCambridge, Mass.bNational Bureau of Economic Researchc2010.1 aNBER working paper seriesvno. w16633 aDecember 2010.3 aThis paper provides first and second-order approximation methods for the solution of non-linear dynamic stochastic models in which the exogenous state variables follow conditionally-linear stochastic processes displaying time-varying risk. The first-order approximation is consistent with a conditionally-linear model in which risk is still time-varying but has no distinct role -- separated from the primitive stochastic disturbances -- in influencing the endogenous variables. The second-order approximation of the solution, instead, is sufficient to get this role. Moreover, risk premia, evaluated using only a first-order approximation of the solution, will be also time varying. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aC63 - Computational Techniques • Simulation Modeling2Journal of Economic Literature class.1 aBenigno, Pierpaolo.1 aNisticò, Salvatore.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w16633.4 uhttp://www.nber.org/papers/w1663341uhttp://dx.doi.org/10.3386/w16633