Accuracy of numerical solutions using the Euler equation residuals

Research output: Contribution to journalArticle

52 Scopus citations

Abstract

This paper is concerned with asymptotic properties on the accuracy of numerical solutions. It is shown that the approximation error of the policy function is of the same order of magnitude as the size of the Euler equation residuals. Moreover, for bounding this approximation error the most relevant parameters are the discount factor and the curvature of the return function. These findings provide theoretical foundations for the construction of tests to assess the performance of alternative computational methods.

Original languageEnglish (US)
Pages (from-to)1377-1402
Number of pages26
JournalEconometrica
Volume68
Issue number6
DOIs
StatePublished - Jan 1 2000
Externally publishedYes

Keywords

  • Accuracy tests
  • Approximation error
  • Error bounds
  • Euler equations
  • Numerical solutions

ASJC Scopus subject areas

  • Economics and Econometrics

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