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Comparison of solutions to the multi-country Real Business Cycle model

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Author Info

  • Kollmann, Robert
  • Maliar, Serguei
  • Malin, Benjamin A.
  • Pichler, Paul

Abstract

We compare the performance of perturbation, projection, and stochastic simulation algorithms for solving the multi-country RBC model described in Den Haan et al. (this issue). The main challenge of solving this model comes from its large number of continuous-valued state variables, ranging between four and 20 in the specifications we consider. The algorithms differ substantially in terms of speed and accuracy, and a clear trade-off exists between the two. Perturbation methods are very fast but invoke large approximation errors except at points close to the steady state; the projection methods considered are accurate on a large area of the state space but are very slow for specifications with many state variables; stochastic simulation methods have lower accuracy than projection methods, but their computational cost increases only moderately with the state-space dimension. Simulated series generated by different methods can differ noticeably, but only small differences are found in unconditional moments of simulated variables. On the basis of our comparison, we identify the factors that account for differences in accuracy and speed across methods, and we suggest directions for further improvement of some approaches.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 2 (February)
Pages: 186-202

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:2:p:186-202

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Numerical solutions Simulations Approximations Algorithms;

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Cited by:
  1. Dieppe, Alistair & González Pandiella, Alberto & Willman, Alpo, 2011. "The ECB's New Multi-Country Model for the euro area: NMCM - simulated with rational expectations," Working Paper Series 1315, European Central Bank.
  2. Maliar, Lilia & Maliar, Serguei & Villemot, Sébastien, 2011. "Taking Perturbation to the Accuracy Frontier: A Hybrid of Local and Global Solutions," Dynare Working Papers 6, CEPREMAP, revised Jul 2012.
  3. Kenneth L. Judd & Lilia Maliar & Serguei Maliar & Rafael Valero, 2013. "Smolyak Method for Solving Dynamic Economic Models: Lagrange Interpolation, Anisotropic Grid and Adaptive Domain," BYU Macroeconomics and Computational Laboratory Working Paper Series 2013-02, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory.
  4. Villemot, Sébastien, 2012. "Accelerating the resolution of sovereign debt models using an endogenous grid method," Dynare Working Papers 17, CEPREMAP.
  5. Kenneth L. Judd & Lilia Maliar & Serguei Maliar, 2010. "A Cluster-Grid Projection Method: Solving Problems with High Dimensionality," NBER Working Papers 15965, National Bureau of Economic Research, Inc.
  6. Dmitriev, Alexandre & Roberts, Ivan, 2013. "The cost of adjustment: On comovement between the trade balance and the terms of trade," Economic Modelling, Elsevier, vol. 35(C), pages 689-700.
  7. Kenneth L. Judd & Lilia Maliar & Serguei Maliar, 2011. "How to Solve Dynamic Stochastic Models Computing Expectations Just Once," NBER Working Papers 17418, National Bureau of Economic Research, Inc.

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