How to assess whether the approximation method does well ?
Posted: Thu Aug 18, 2016 2:14 pmHi,
I was wondering if there is some way to know whether relying on low-order perturbation method provides a good enough approximation of the actual optimal decision rule in some specific model ?
How can we see which one of first-order, second-order or third order approximation is more appropriate for solving a specific model and whether it is appropriate at all ?
I had a look at the residuals in my model's equations when simulating the model over a large number of periods, but I don't know what is considered as a high residual or not.
Is there some better way to assess this ?
Thanks a lot !
I was wondering if there is some way to know whether relying on low-order perturbation method provides a good enough approximation of the actual optimal decision rule in some specific model ?
How can we see which one of first-order, second-order or third order approximation is more appropriate for solving a specific model and whether it is appropriate at all ?
I had a look at the residuals in my model's equations when simulating the model over a large number of periods, but I don't know what is considered as a high residual or not.
Is there some better way to assess this ?
Thanks a lot !