This paper presents a new numerical algorithm for solving the Sylvester equation involved in higher-order perturbation methods developed for solving stochastic dynamic general equilibrium models. The new algorithm surpasses other methods used so far (including the very popular doubling algorithm) in terms of computational time, memory consumption, and numerical stability.
Keywords: Dynamic General Equilibrium, Doubling Algorithm, Perturbation Approach, Recursive Algorithm.
Issued: December 2005
Published as: "Solving SDGE Models: A New Algorithm for the Sylvester Equation", Computational Economics, Nos. 1-2, p.167-187 2005
Download CNB WP No. 10/2005 (pdf, 226 kB)