Abstract
The dynamic properties of micro based stochastic macro models are often analyzed through a linearization around the associated deterministic steady state. Recent literature has investigated the errors made by such a deterministic approximation. Complementary to this literature we investigate how the linearization affects the stochastic properties of the original model. We consider a simple real business cycle model with noisy learning by doing. The solution has a stationary distribution that exhibits moment failure and has an unbounded support. The linear approximation, however, yields a stationary distribution with possibly a bounded support and all moments finite. (C) 2010 Elsevier B.V. All rights reserved.
| Original language | Undefined/Unknown |
|---|---|
| Pages (from-to) | 817-824 |
| Number of pages | 8 |
| Journal | Journal of Economic Dynamics and Control |
| Volume | 34 |
| Issue number | 5 |
| DOIs | |
| Publication status | Published - 2010 |