Perturbation Method


When I introduce a linear model in dynare which method it uses to solve it. The perturbation method?, or the perturbation method is only used when a want a second order approximation?

If that is the case, which method uses dynare to solve a linear model.


dynare always solves using perturbation methods
you just choose the order (1st or 2nd)

I guess the plan is to have projection methods in v4 but I do not know when that will be ready…


Dynare will solve the model with a perturbation approach (second order is the default) if you trigger the simulation with the stoch_simul(); command. Instead if the simul(); command is used the model will be solved with a relaxation approach (deterministic simulation). Projection methods are not yet available in Dynare.


Then, if I have a log-linearized model, Dynare solves the model using a approximation over a already approximated model?

In this case, you should use the option

to tell Dynare the model is already linear (see the manual). Note also that if your model is already linear, the linearized model would again just be your model. There is no approximation error involved.