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Solving the multi-country Real Business Cycle model using a monomial rule Galerkin method

  • Pichler, Paul

I propose a Galerkin projection method for solving dynamic economic models with many state variables. This method employs non-product monomial integration formulas for the computation of weighted residuals, and its computational cost therefore increases only polynomially in the model's dimensionality. I illustrate the practical implementation of the proposed algorithm by solving several specifications of the multi-country Real Business Cycle model described in Den Haan et al. [2010. Computational suite of models with heterogeneous agents: multi-country Real Business Cycle models. Journal of Economic Dynamics and Control, this issue], and briefly discuss two possible routes for further improving its numerical accuracy.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 2 (February)
Pages: 240-251

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:2:p:240-251
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Fernando M. Martin, 2004. "A Positive Theory of Government Debt," Macroeconomics 0408013, EconWPA, revised 12 Oct 2004.
  2. Yann Algan & Olivier Allais & Wouter J Den Haan, 2010. "Solving the incomplete markets model with aggregate uncertainty using parameterized cross-sectional distributions," Sciences Po publications info:hdl:2441/72lkhuq5cm8, Sciences Po.
  3. Jess Gaspar & Kenneth L. Judd, 1997. "Solving Large Scale Rational Expectations Models," NBER Technical Working Papers 0207, National Bureau of Economic Research, Inc.
  4. Lawrence J. Christiano & Jonas D.M. Fisher, 1997. "Algorithms for solving dynamic models with occasionally binding constraints," Working Paper Series, Macroeconomic Issues WP-97-15, Federal Reserve Bank of Chicago.
  5. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, March.
  6. Judd, Kenneth L., 1992. "Projection methods for solving aggregate growth models," Journal of Economic Theory, Elsevier, vol. 58(2), pages 410-452, December.
  7. repec:esx:essedp:687 is not listed on IDEAS
  8. Ulrich Doraszelski & Kenneth L. Judd, 2012. "Avoiding the curse of dimensionality in dynamic stochastic games," Quantitative Economics, Econometric Society, vol. 3(1), pages 53-93, 03.
  9. S. Boragan Aruoba & Jesus Fernandez-Villaverde & Juan F. Rubio-Ramirez, 2003. "Comparing Solution Methods for Dynamic Equilibrium Economies," PIER Working Paper Archive 04-003, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  10. Maliar, Lilia & Maliar, Serguei & Valli, Fernando, 2010. "Solving the incomplete markets model with aggregate uncertainty using the Krusell-Smith algorithm," Journal of Economic Dynamics and Control, Elsevier, vol. 34(1), pages 42-49, January.
  11. Den Haan, Wouter J. & Rendahl, Pontus, 2010. "Solving the incomplete markets model with aggregate uncertainty using explicit aggregation," Journal of Economic Dynamics and Control, Elsevier, vol. 34(1), pages 69-78, January.
  12. Benjamin Malin & Dirk Krueger & Felix Kubler, 2007. "Computing Stochastic Dynamic Economic Models with a Large Number of State Variables: A Description and Application of a Smolyak-Collocation Method," NBER Working Papers 13517, National Bureau of Economic Research, Inc.
  13. Reiter, Michael, 2009. "Solving heterogeneous-agent models by projection and perturbation," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 649-665, March.
  14. Viktor Winschel & Markus Kr‰tzig, 2010. "Solving, Estimating, and Selecting Nonlinear Dynamic Models Without the Curse of Dimensionality," Econometrica, Econometric Society, vol. 78(2), pages 803-821, 03.
  15. Salvador Ortigueira, 2006. "Markov-Perfect Optimal Taxation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 153-178, January.
  16. Niemann, Stefan & Pichler, Paul & Sorger, Gerhard, 2010. "Central bank independence and the monetary instrument problem," Economics Discussion Papers 2902, University of Essex, Department of Economics.
  17. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
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