We present a new approach to the approximation of equilibrium solutions to nonlinear rational expectations models that applies to any order of approximation. The approach relies on a particular version of Taylor series approximations-the differential version-and on a scalar perturbation of the...

We present a new approach to the approximation of equilibrium solutions to nonlinear rational expectations models that applies to any order of approximation. The approach relies on a particular version of Taylor series approximations - the differential version - and on a scalar perturbation of...

Total factor productivity (TFP) computed as Solow-residuals could be subject to input-substitution bias for two reasons. First, the Cobb-Douglas (CD) production function restricts all input substitutions to one. Second, observed inputs generally differ from optimal inputs, so that inputs...

The untested assumption of linear relationship between stocks and bonds in previous empirical studies may lead to an invalid conclusion if the actual relationship is non-linear. The emphasis of this paper is on the effect of non-linearities on causal relationships between stocks and bonds in the...

This paper derives loss functions for analyses of optimal monetary policy that are grounded in the welfare of private agents, in the case of explicit optimizing models of private-sector behavior in which the real effects of monetary policy result from nominal price rigidity. A quadratic...