Title: Nonlocal solutions to dynamic equilibrium models: The approximate stable manifolds approach
Authors: Viktors Ajevskis - Bank of Latvia (Latvia) [presenting]
Abstract: A method for constructing a sequence of approximate solutions of increasing accuracy to general equilibrium models on nonlocal domains is presented. The method is based on a technique originated from dynamical systems theory. The approximate solutions are constructed employing the contraction mapping theorem and the fact that solutions to general equilibrium models converge to a steady state. Under certain nonlocal conditions the convergence of the approximate solutions to the true solution is proved. The proposed approach can be treated as a rigorous proof of convergence for the extended path algorithm a class of nonlinear rational expectation models.