A Toolbox for the Numerical Study of Linear DynamicRational Expectations Models

By simplifying the computational tasks and by providing step-by-step explana-tions of the procedures required to study a linear dynamic rational expectations(LDRE) model, this paper and the accompanying \LDRE Toolbox" of Matalb func-tions guide a researcher with almost no experience in computational work to resolveand study his own model. After coding the model following specific guidelines, asingle function call is all that is needed to log-linearize the model; simulate it underexogenous sequences of shocks; compute sample and population moment conditions;and obtain impulse-response functions. Three classical models in the Real-Business-Cycles literature are solved and studied throughout to give detailed examples ofthe steps involved in solving and studying LDRE models using the LDRE Toolbox.Namely, the economies in Brock and Mirman (Optimal Growth and Uncertainty: theDiscounted Case, Journal of Economic Theory 4(3): 479-513; 1972); King, Plosser,and Rebelo (Production, Growth and Business Cycles I: The Basic NeoclassicalModel, Journal of Monetary Economics 21: 195-232; 1988); and Mendoza (RealBusiness Cycles in a Small Open Economy, American Economic Review 81(4): 797-818; 1991).[...]