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Accelerating the resolution of sovereign debt models using an endogenous grid method

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  • Villemot, Sébastien

Abstract

State-of-the-art algorithms for solving sovereign debt models with endogenous default rely on value function iterations. These algorithms are consequently very slow and quickly become intractable, even for a state space of dimension as low as three. This paper shows how to adapt the endogenous grid method for sovereign debt models, leading to a dramatic speed gain by a factor comprised between 5 and 10. A second contribution is to quantify and compare the accuracy of the computed solutions by both the value function iterations and the endogenous grid method.

Suggested Citation

  • Villemot, Sébastien, 2012. "Accelerating the resolution of sovereign debt models using an endogenous grid method," Dynare Working Papers 17, CEPREMAP.
  • Handle: RePEc:cpm:dynare:017
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    Cited by:

    1. 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.

    More about this item

    Keywords

    sovereign debt; endogenous default; endogenous grid method; solution accuracy;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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