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Add notebook showing linearization/perturbation math

Open jessegrabowski opened this issue 7 months ago • 0 comments

Notebook should use a toy system; 3 equation RBC in reduced form for readability. Bonus points if we use a model with an analytic solution, so we can compare it to the perturbation solution

  1. Get the jacobian matrices A, B, C, D using sympy
  2. Substitute variables x for exp(x) and show the difference between linear and log-linear approximation
  3. Explain the algebra that gives the system of equations for $T$ and $R$
  4. Explain the algebra that leads to the QZ-decomposition and the approximate policy solutions $T = Z_{22}^{-1} Z_{21}$ and $R = -(CT + B)^{-1} D$
  5. Do it by hand using scipy.linalg.ordqz

Good resource: https://stephane-adjemian.fr/dynare/slides/dsge-perturbation-method.pdf

jessegrabowski avatar Mar 17 '25 03:03 jessegrabowski