Comparing solution methods for DSGE models with labor market search

Hong Lan

I compare the performance of solution methods in solving a standard real business cycle model with labor market search frictions. Under the conventional calibration, the model is solved by the projection method using the Chebyshev polynomials as its basis, and the perturbation methods up to third order in both levels and logs. Evaluated by two accuracy tests, the projection approximation achieves the highest degree of accuracy, closely followed by the third order perturbation in levels. Although different in accuracy, all the approximated solutions produce simulated moments similar in value.

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Year of publication:	2014 ; This Version: September 11, 2014
Authors:	Lan, Hong
Publisher:	Berlin : SFB 649, Economic Risk
Subject:	Computational methods \| DSGE \| Business cycles \| Search and matching \| Accuracy test \| Dynamisches Gleichgewicht \| Dynamic equilibrium \| DSGE-Modell \| DSGE model \| Suchtheorie \| Search theory \| Matching \| Arbeitsuche \| Job search \| Konjunktur \| Business cycle \| Arbeitsmarkt \| Labour market