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Solving rational expectations models at first order: what Dynare does

By Sébastien Villemot


This paper describes in detail the algorithm implemented in Dynare for computing the first order approximated solution of a nonlinear rational expectations model. The core of the algorithm is a generalized Schur decomposition (also known as the QZ decomposition), as advocated by several authors in the litterature. The contribution of the present paper is to focus on implementation details that make the algorithm more generic and more efficient, especially for large models.Dynare; Numerical methods; Perturbation; Rational expectations

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