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Solving the multi-country real business cycle model using ergodic set methods

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  • Kenneth Judd

    ()
    (Hoover Institution)

  • Lilia Maliar

    ()
    (Universidad de Alicante)

  • Serguei Maliar

    (Universidad de Alicante)

Abstract

We use the stochastic simulation algorithm, described in Judd, Maliar and Maliar (2009), and the cluster-grid algorithm, developed in Judd, Maliar and Maliar (2010a), to solve a collection of multi-country real business cycle models. The following ingredients help us reduce the cost in high-dimensional problems: an endogenous grid enclosing the ergodic set, linear approximation methods, fixed-point iteration and efficient integration methods, such as non-product monomial rules and Monte Carlo integration combined with regression. We show that high accuracy in intratemporal choice is crucial for the overall accuracy of solutions and offer two approaches, precomputation and iteration-on-allocation, that can solve for intratemporal choice both accurately and quickly. We also implement a hybrid solution algorithm that combines the perturbation and accurate intratemporal-choice methods

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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2011-01.

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Length: 54 pages
Date of creation: Jan 2011
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2011-01

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Keywords: heterogeneous agents; numerical methods; stochastic simulation; parameterized expectations algorithm; projection; perturbation.;

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  1. Den Haan, Wouter J. & Judd, Kenneth L. & Juillard, Michel, 2011. "Computational suite of models with heterogeneous agents II: Multi-country real business cycle models," Journal of Economic Dynamics and Control, Elsevier, vol. 35(2), pages 175-177, February.
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Cited by:
  1. Hubert Janos Kiss & Ismael Rodriguez‐Lara & Alfonso Rosa‐García, 2012. "On the Effects of Deposit Insurance and Observability on Bank Runs: An Experimental Study," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(8), pages 1651-1665, December.
  2. Lilia Maliar & Serguei Maliar, 2013. "Envelope condition method versus endogenous grid method for solving dynamic programming problems," Working Papers. Serie AD 2013-07, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Andrei Jirnyi & Vadym Lepetyuk, 2011. "A reinforcement learning approach to solving incomplete market models with aggregate uncertainty," Working Papers. Serie AD 2011-21, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  4. Akgün Uğur & Chioveanu Ioana, 2013. "Loyalty Discounts," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 655-685, September.
  5. 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.
  6. Alexandre Dmitriev & Ivan Roberts, 2013. "International Business Cycles with Complete Markets," RBA Research Discussion Papers rdp2013-08, Reserve Bank of Australia.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. Katrin Rabitsch & Serhiy Stepanchuk & Viktor Tsyrennikov, 2014. "International Portfolios: A Comparison of Solution Methods," Department of Economics Working Papers wuwp159, Vienna University of Economics, Department of Economics.

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