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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. Jesús Fernández-Villaverde & Grey Gordon & Pablo Guerrón-Quintana & Juan F. Rubio-Ramírez, 2012. "Nonlinear adventures at the zero lower bound," Working Papers 12-10, Federal Reserve Bank of Philadelphia.
  2. Tom Holden & Michael Paetz, 2012. "Efficient simulation of DSGE models with inequality constraints," School of Economics Discussion Papers 1612, School of Economics, University of Surrey.
  3. 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.

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