Assessing two common approaches for solving models with saddle-path instabilities

Abstract

This paper presents an approach for assessing the time taken by the well known reverse-shooting and forward-shooting algorithms to solve large-scale macroeconomic models characterized by saddle-path instability. We focus on a range of investment models with multi-dimensional specifications of the capital stock. Each algorithm presents a complicated exercise with a potentially unstable ordinary differential equation to be solved over a wide parameter space and involving a difficult search. Our results provide insights into how the complexity of the solutions to a broad range of macroeconomic models increases with the dimensionality of the models. We describe how econometric techniques could b..