We introduce a new algorithm that can be used to solve stochastic dynamic general equilibrium models. This approach exploits the fact that the equations defining equilibrium can be viewed as a set of differential algebraic equations in the neighborhood of the steady-state. Then a modified...

We extend the Carlstrom and Fuerst (1997) agency cost model of business cycles by including time varying uncertainty in the technology shocks that affect capital production. We first demonstrate that standard linearization methods can be used to solve the model yet second moments enter the...

This paper analyzes the role of uncertainty in a multi-sector housing model with financial frictions. We include time varying uncertainty (i.e. risk shocks) in the technology shocks that affect housing production. The analysis demonstrates that risk shocks to the housing production sector are a...