Solving Non-Linear Rational Expectations Models

A general framework for describing non-linear rational expectation models is developed that involves state variables, response variables and expectation variables. The solution to such models can be expressed in terms of a response function or an expectation function. Computational methods for solving such models involve approximating one of these functions. Alternative methods are characterized by how the expectation operator is approximated, what family of approximation is used for the solution function, what criteria are used for choosing approximation parameters and what algorithm is used to identify the parameters. A user-friendly Matlab procedure that incorporates a wide variety of possible choices is described.