This paper develops a general perturbation methodology for constructing high-order approximations to the solutions of … Markov-switching DSGE models. We introduce an important and practical idea of partitioning the Markov-switching parameter …

Out-of-sample forecasting tests of DSGE models against time-series benchmarks such as an unrestricted VAR are … on a widely-used DSGE model to investigate the power of these tests. We find that in specification testing they have weak … power relative to an in-sample indirect inference test; this implies that a DSGE model may be badly mis-specified and still …

(DSGE) models with recursive preferences such as those in Epstein and Zin (1989 and 1991). Models with these preferences …-order perturbation, Chebyshev polynomials, and value function iteration. We document the performance of the methods in terms of computing … time, implementation complexity, and accuracy. Our main finding is that a third-order perturbation is competitive in terms …