Kenneth L. Judd

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We describe an algorithm for calculating second order approximations to the solutions to nonlinear stochastic rational expectations models. The paper also explains methods for using such an approximate solution to generate forecasts, simulated time paths for the model, and evaluations of expected welfare differences across different versions of a model. The(More)
Maximum likelihood estimation of structural models is often viewed as computationally difficult. This impression is due to a focus on the Nested FixedPoint approach. We present a direct optimization approach to the general problem and show that it is significantly faster than the NFXP approach when applied to the canonical Zurcher bus repair model. The NFXP(More)
Discrete-time stochastic games with a finite number of states have been widely applied to study the strategic interactions among forward-looking players in dynamic environments. However, these games suffer from a “curse of dimensionality” since the cost of computing players’ expectations over all possible future states increases exponentially in the number(More)
Since central banks have limited information concerning the transmission channel of monetary policy, they are faced with the di$cult task of simultaneously controlling the policy target and estimating the impact of policy actions. A tradeo! between estimation and control arises because policy actions in#uence estimation and provide information which may(More)
Trading volume of infinitely lived securities, such as equity, is generically zero in Lucas asset-pricing models with heterogeneous agents. More generally, the end-of-period portfolio of all securities is constant over time and states in the generic economy. General equilibrium restrictions rule out trading of equity after an initial period. This result(More)
Mean dynamics describe the convergence to self-confirming equilibria of selfreferential systems under discounted least squares learning. Escape dynamics recurrently propel away from a self-confirming equilibrium. In a model with a unique self-confirming equilibrium, the escape dynamics make the government discover too strong a version of the natural rate(More)
We describe a general Taylor series method for computing asymptotically valid approximations to deterministic and stochastic rational expectations models near the deterministic steady state. Contrary to conventional wisdom, the higher-order terms are conceptually no more difficult to compute than the conventional deterministic linear approximations. We(More)