Computing stochastic dynamic economic models with a large number of state variables
Subtitle: a description and application of a Smolyak-collocation method
By: Benjamin Malin, Dirk Krueger, Felix Kubler.
Contributors: Krueger, Dirk.; Kubler, Felix.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13517.; Working paper series (National Bureau of Economic Research) -- working paper no. 13517.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 29
Subjects: Econometric models
Description: We describe a sparse grid collocation algorithm to compute recursive solutions of dynamic economies with a sizable number of state variables. We show how powerful this method may be in applications by computing the nonlinear recursive solution of an international real business cycle model with a substantial number of countries, complete insurance markets and frictions that impede frictionless international capital flows. In this economy the aggregate state vector includes the distribution of world capital across different countries as well as the exogenous country-specific technology shocks. We use the algorithm to efficiently solve models with 2, 4, and 6 countries (i.e., up to 12 continuous state variables).
Notes: "October 2007"

Includes bibliographical references (p. 29).

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