Working Paper: NBER ID: w15965
Authors: Kenneth L Judd; Lilia Maliar; Serguei Maliar
Abstract: We develop a projection method that can solve dynamic economic models with a large number of state variables. A distinctive feature of our method is that it operates on the ergodic set realized in equilibrium: we simulate a model, distinguish clusters on simulated series and use the clusters' centers as a grid for projections. Making the grid endogenous to the model allows us to avoid costs associated with finding a solution in areas of state space that are never visited in equilibrium. On a standard desktop computer, we calculate linear and quadratic solutions to a multi-country growth model with up to 400 and 80 state variables, respectively. Our solutions are global, and their accuracy does not rapidly decline away from steady state.
Keywords: No keywords provided
JEL Codes: C02; C63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| method's design (operating on the ergodic set) (C90) | accuracy of the solutions obtained (C62) |
| degree of the approximating polynomial (C60) | solution accuracy (C62) |
| integration method chosen (e.g., Gauss-Hermite quadrature) (C69) | accuracy of the solutions (C62) |
| number of clusters (C38) | computational efficiency (C63) |