Hello everyone,
i am working on a model in which i would like to account for the effect of changes in the interest rate on the households debt services. As i assume a zero debt steady state, changes in the interest rate unfortunately drop out in a first-order approximation of the households budget.
The only solution i can imagine is to take a second order approximation which comprises cross-terms of the deviations. So i am wondering if anyone has a hint concerning first references for this problem? Is it possible to take a second-order approximation of the budget only, leaving the remaining equations in first order approximation?
Many many thanks in advance for any advice!
Simon
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First references for 2nd order approximations
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First references for 2nd order approximations
by Simon » Tue Oct 18, 2011 1:55 pm
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