Solving the multi-country real business cycle model using a Smolyak-collocation method
AbstractWe 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 InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 35 (2011)
Issue (Month): 2 (February)
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Web page: http://www.elsevier.com/locate/jedc
Sparse grids Collocation International real business cycles;
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