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How to Solve Dynamic Stochastic Models Computing Expectations Just Once

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  • Kenneth L. Judd
  • Lilia Maliar
  • Serguei Maliar

Abstract

We introduce a technique called "precomputation of integrals" that makes it possible to compute conditional expectations in dynamic stochastic models in the initial stage of the solution procedure. This technique can be applied to any set of equations that contains conditional expectations, in particular, to the Bellman and Euler equations. After the integrals are precomputed, we can solve stochastic models as if they were deterministic. We illustrate the benefits of precomputation of integrals using one- and multi-agent numerical examples.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17418.

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Date of creation: Sep 2011
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Handle: RePEc:nbr:nberwo:17418

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References

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  1. S. Boragan Aruoba & Jesus Fernandez-Villaverde & Juan Francisco Rubio-Ramirez, 2003. "Comparing solution methods for dynamic equilibrium economies," Working Paper 2003-27, Federal Reserve Bank of Atlanta.
  2. Kenneth Judd & Lilia Maliar & Serguei Maliar, 2011. "Solving the multi-country real business cycle model using ergodic set methods," Working Papers. Serie AD 2011-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Kollmann, Robert & Maliar, Serguei & Malin, Benjamin A. & Pichler, Paul, 2011. "Comparison of solutions to the multi-country Real Business Cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 35(2), pages 186-202, February.
  4. Miranda, Mario J & Helmberger, Peter G, 1988. "The Effects of Commodity Price Stabilization Programs," American Economic Review, American Economic Association, vol. 78(1), pages 46-58, March.
  5. Lilia Maliar & Serguei Maliar, 2004. "Solving Nonlinear Dynamic Stochastic Models: An Algorithm Computing Value Functions By Simulations," Working Papers. Serie AD 2004-37, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  6. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711.
  7. Kenneth Judd & Lilia Maliar & Serguei Maliar, 2011. "Numerically stable and accurate stochastic simulation approaches for solving dynamic economic models," Working Papers. Serie AD 2011-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  8. Barillas, Francisco & Fernandez-Villaverde, Jesus, 2007. "A generalization of the endogenous grid method," Journal of Economic Dynamics and Control, Elsevier, vol. 31(8), pages 2698-2712, August.
  9. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
  10. Lawrence J. Christiano & Jonas D.M. Fisher, 1997. "Algorithms for solving dynamic models with occasionally binding constraints," Working Paper 9711, Federal Reserve Bank of Cleveland.
  11. Krueger, Dirk & Kubler, Felix, 2004. "Computing equilibrium in OLG models with stochastic production," Journal of Economic Dynamics and Control, Elsevier, vol. 28(7), pages 1411-1436, April.
  12. Gaspar, Jess & L. Judd, Kenneth, 1997. "Solving Large-Scale Rational-Expectations Models," Macroeconomic Dynamics, Cambridge University Press, vol. 1(01), pages 45-75, January.
  13. Judd, K.L., 1992. "Projection Methods for Saving Aggregate Growth Models," Working Papers e-92-7, Hoover Institution, Stanford University.
  14. Albert Marcet & Guido Lorenzoni, 1998. "The Parameterized Expectations Approach: Some Practical Issues," QM&RBC Codes 128, Quantitative Macroeconomics & Real Business Cycles.
  15. Den Haan, Wouter, 2008. "Comparison of Solutions to the Incomplete Markets Model with Aggregate Uncertainty," CEPR Discussion Papers 7019, C.E.P.R. Discussion Papers.
  16. 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.
  17. Hans M. Amman & David A. Kendrick, . "Computational Economics," Online economics textbooks, SUNY-Oswego, Department of Economics, number comp1.
  18. Marimon, Ramon & Scott, Andrew (ed.), 1999. "Computational Methods for the Study of Dynamic Economies," OUP Catalogue, Oxford University Press, number 9780198294979, July.
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  1. How to Solve Dynamic Stochastic Models Computing Expectations Just Once
    by Christian Zimmermann in NEP-DGE blog on 2011-10-24 03:00:06

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