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Solving the multi-country real business cycle model using a Smolyak-collocation method

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Author Info

  • Malin, Benjamin A.
  • Krueger, Dirk
  • Kubler, Felix

Abstract

We describe a sparse-grid collocation method to compute recursive solutions of dynamic economies with a sizable number of state variables. We show how powerful this method can be in applications by computing the non-linear 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 up to 10 countries (i.e., up to 20 continuous-valued state variables).

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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: 229-239

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:2:p:229-239

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

Related research

Keywords: Sparse grids Collocation International real business cycles;

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Cited by:
  1. Kenneth L. Judd & Lilia Maliar & Serguei Maliar & Rafael Valero, 2013. "Smolyak Method for Solving Dynamic Economic Models: Lagrange Interpolation, Anisotropic Grid and Adaptive Domain," NBER Working Papers 19326, National Bureau of Economic Research, Inc.
  2. Julien Albertini & Arthur Poirier, 2014. "Unemployment benefits extensions at the zero lower bound on nominal interest rate," SFB 649 Discussion Papers SFB649DP2014-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  3. Antonio Mele, 2008. "Repeated Moral Hazard and Recursive Lagrangeans," 2008 Meeting Papers 482, Society for Economic Dynamics.
  4. Tom Holden & Michael Paetz, 2012. "Efficient Simulation of DSGE Models with Inequality Constraints," Quantitative Macroeconomics Working Papers 21207b, Hamburg University, Department of Economics.
  5. Jesús Fernández-Villaverde & Grey Gordon & Pablo A. Guerrón-Quintana & Juan Rubio-Ramírez, 2012. "Nonlinear Adventures at the Zero Lower Bound," NBER Working Papers 18058, National Bureau of Economic Research, Inc.
  6. Pontus Rendahl, 2013. "Inequality Constraints and Euler Equation based Solution Methods," Cambridge Working Papers in Economics 1320, Faculty of Economics, University of Cambridge.
  7. Jasmina Hasanhodzic & Laurence J. Kotlikoff, 2013. "Generational Risk–Is It a Big Deal?: Simulating an 80-Period OLG Model with Aggregate Shocks," BYU Macroeconomics and Computational Laboratory Working Paper Series 2013-01, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory.
  8. Jasmina Hasanhodzic & Laurence J. Kotlikoff, 2013. "Generational Risk – Is It a Big Deal?: Simulating an 80-Period OLG Model with Aggregate Shocks," NBER Working Papers 19179, National Bureau of Economic Research, Inc.

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