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Merging simulation and projection approaches to solve high-dimensional problems

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Author Info

  • Kenneth Judd

    ()
    (Hoover Institution)

  • Lilia Maliar

    ()
    (Universidad de Alicante)

  • Serguei Maliar

    (Universidad de Alicante)

Abstract

We introduce an algorithm for solving dynamic economic models that merges stochastic simulation and projection approaches: we use simulation to approximate the ergodic measure of the solution, we construct a fixed grid covering the support of the constructed ergodic measure, and we use projection techniques to accurately solve the model on that grid. The grid construction is the key novel piece of our analysis: we select an e-distinguishable subset of simulated points that covers the support of the ergodic measure roughly uniformly. The proposed algorithm is tractable in problems with high dimensionality (hundreds of state variables) on a desktop computer. As an illustration, we solve one- and multicountry neoclassical growth models and a large-scale new Keynesian model with a zero lower bound on nominal interest rates.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2012-20.pdf
File Function: Fisrt version / Primera version, 2012
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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 2012-20.

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Length: 77 pages
Date of creation: Nov 2012
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2012-20

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Related research

Keywords: ergodic set; e-distinguishable set; clusters; discrepancy; large-scale; new Keynesian; ZLB; stochastic simulation.;

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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," BYU Macroeconomics and Computational Laboratory Working Paper Series 2013-02, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory.
  2. Nick Draper & André Nibbelink & Johannes Uhde, 2013. "An Assessment of Alternatives for the Dutch First Pension Pillar, The Design of Pension Schemes," CPB Discussion Paper 259, CPB Netherlands Bureau for Economic Policy Analysis.
  3. Maliar, Lilia & Maliar, Serguei, 2013. "Envelope condition method versus endogenous grid method for solving dynamic programming problems," Economics Letters, Elsevier, vol. 120(2), pages 262-266.
  4. 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.

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