Linking steady_state block to homotopy

Steady state
1

Hey Everyone !
I’m Thomas, I work on calibrated OLG models, but now venturing in estimating DSGE models using Simulated Method of Moments.

SMM requires either an analytical solution or a steady_state block. I was wondering if we could use initval combined with homotopy instead?
In the sense that I have a working, but non-estimated pair of steady state values and parameters. As SMM iterates, new parameters are chosen. Homotopy could be called and solve for that steady state. This would avoid me to write a full steady_state_model block or use a helper function.

At first glance I assume this would be possible, by updating the parameters and initial values at each iteration. However, I assume this will be make SMM unbearably slow as to become inefficient. As I am new to this, just wanted to know if this is a path worth exploring and if so: how would I tackle it ?

Thanks !

2
  1. Dynare does not allow you to automatically do this kind of homotopy.
  2. My experience is that going through the hassle of computing an analytical steady state ultimately pays off when estimating models. You will save a lot of time and gain robustness. Homotopy can still fail and you would be discarding draws that are valid.
1 Like
3

Dear Prof. Pfeifer,

Thank you, I was assuming as much.
Okay, I’ll look at solving the model analytically and combined with a helper function (to solve e.g. Labour and such).