Advanced Search
MyIDEAS: Login to save this paper or follow this series

Numerically Stable Stochastic Simulation Approaches for Solving Dynamic Economic Models

Contents:

Author Info

  • Kenneth Judd
  • Lilia Maliar
  • Serguei Maliar

Abstract

We develop numerically stable stochastic simulation approaches for solving dynamic economic models. We rely on standard simulation procedures to simultaneously compute an ergodic distribution of state variables, its support and the associated decision rules. We differ from existing methods, however, in how we use simulation data to approximate decision rules. Instead of the usual least-squares approximation methods, we examine a variety of alternatives, including the least-squares method using SVD, Tikhonov regularization, least-absolute deviation methods, principal components regression method, all of which are numerically stable and can handle ill-conditioned problems. These new methods enable us to compute high-order polynomial approximations without encountering numerical problems. Our approaches are especially well suitable for high-dimensional applications in which other methods are infeasible.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w15296.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15296.

as in new window
Length:
Date of creation: Aug 2009
Date of revision:
Publication status: published as Kenneth L. Judd, Lilia Maliar and Serguei Maliar, (2011). “Numerically Stable and Accurate Stochastic Simulation Methods for Solving Dynamic Models" and "Supplement", Quantitative Economics 2, 173-2010.
Handle: RePEc:nbr:nberwo:15296

Note: EFG TWP
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Michael Creel, 2008. "Using Parallelization to Solve a Macroeconomic Model: A Parallel Parameterized Expectations Algorithm," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 32(4), pages 343-352, November.
  2. Roger Koenker & Kevin F. Hallock, 2001. "Quantile Regression," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 15(4), pages 143-156, Fall.
  3. Fair, Ray C & Taylor, John B, 1983. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Econometrica, Econometric Society, Econometric Society, vol. 51(4), pages 1169-85, July.
  4. Lawrence J. Christiano & Jonas D.M. Fisher, 1997. "Algorithms for Solving Dynamic Models with Occasionally Binding Constraints," NBER Technical Working Papers 0218, National Bureau of Economic Research, Inc.
  5. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(3), pages 659-84, August.
  6. Lilia Maliar & Serguei Maliar, 2001. "Parametrized Expectations Algorithm And The Moving Bounds," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2001-23, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  7. A. Charnes & W. W. Cooper & R. O. Ferguson, 1955. "Optimal Estimation of Executive Compensation by Linear Programming," Management Science, INFORMS, INFORMS, vol. 1(2), pages 138-151, January.
  8. Den Haan, Wouter J & Marcet, Albert, 1994. "Accuracy in Simulations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(1), pages 3-17, January.
  9. Lilia Maliar & Serguei Maliar, 2002. "The Representative Consumer In The Neoclassical Growth Model With Idiosyncratic Shocks," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2002-20, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  10. Krueger, Dirk & Kubler, Felix, 2004. "Computing equilibrium in OLG models with stochastic production," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 28(7), pages 1411-1436, April.
  11. Gaspar, Jess & L. Judd, Kenneth, 1997. "Solving Large-Scale Rational-Expectations Models," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 1(01), pages 45-75, January.
  12. Carl Eckart & Gale Young, 1936. "The approximation of one matrix by another of lower rank," Psychometrika, Springer, Springer, vol. 1(3), pages 211-218, September.
  13. Taylor, John B & Uhlig, Harald, 1990. "Solving Nonlinear Stochastic Growth Models: A Comparison of Alternative Solution Methods," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 8(1), pages 1-17, January.
  14. den Haan, Wouter J & Marcet, Albert, 1990. "Solving the Stochastic Growth Model by Parameterizing Expectations," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 8(1), pages 31-34, January.
  15. Albert Marcet & Guido Lorenzoni, 1998. "The Parameterized Expectations Approach: Some Practical Issues," QM&RBC Codes, Quantitative Macroeconomics & Real Business Cycles 128, Quantitative Macroeconomics & Real Business Cycles.
  16. Judd, Kenneth L., 1992. "Projection methods for solving aggregate growth models," Journal of Economic Theory, Elsevier, Elsevier, vol. 58(2), pages 410-452, December.
  17. Per Krusell & Anthony A. Smith, Jr., . "Income and Wealth Heterogeneity in the Macroeconomy," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 1997-37, Carnegie Mellon University, Tepper School of Business.
  18. Santos, Manuel S., 1999. "Numerical solution of dynamic economic models," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 5, pages 311-386 Elsevier.
  19. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 33-50, January.
  20. Marimon, Ramon & Scott, Andrew (ed.), 1999. "Computational Methods for the Study of Dynamic Economies," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198294979, October.
  21. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Thomas Mertens, 2012. "Solving General Incomplete Market Models with Substantial Heterogeneity," 2012 Meeting Papers, Society for Economic Dynamics 1173, Society for Economic Dynamics.
  2. Mennuni, Alessandro, 2013. "Labor Force Composition and Aggregate Fluctuations," Discussion Paper Series In Economics And Econometrics 1302, Economics Division, School of Social Sciences, University of Southampton.
  3. 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.
  4. Alexandre Dmitriev & Ivan Roberts, 2013. "International Business Cycles with Complete Markets," RBA Research Discussion Papers, Reserve Bank of Australia rdp2013-08, Reserve Bank of Australia.
  5. Laurence Kotlikoff, 2013. "The US Fiscal Cliff – When Economists Recklessly Endanger the Economy," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 14(2), pages 03-08, 08.
  6. Dmitriev, Alexandre & Roberts, Ivan, 2013. "The cost of adjustment: On comovement between the trade balance and the terms of trade," Economic Modelling, Elsevier, Elsevier, vol. 35(C), pages 689-700.
  7. 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.
  8. 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, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory 2013-01, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:15296. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.