Perturbation Methods: Model Evaluation and Applications

This chapter introduces readers to two standard tools for evaluating the solution of a dynamic stochastic general equilibrium (DSGE) model: second moments and impulse response functions. Drawing on these diagnostic tools, Heer and Maußner consider three applications: the benchmark business cycle model, a time-to-build variant of this model, and a New Key-nesian model with consumption habits, investment adjustment costs, and sticky nominal prices and wages for the study of monetary policy.