Merging Simulation and Projection Approaches to Solve High-Dimensional Problems

75 Pages Posted: 3 Nov 2012 Last revised: 22 Jul 2023

See all articles by Kenneth L. Judd

Kenneth L. Judd

Stanford University - The Hoover Institution on War, Revolution and Peace; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP); National Bureau of Economic Research (NBER)

Lilia Maliar

CUNY The Graduate Center - Department of Economics

Serguei Maliar

Universidad de Alicante - Departamento de Fundamentos del Analisis Economico; Stanford University - Department of Economics

Date Written: November 2012

Abstract

We introduce an algorithm for solving dynamic economic models that merges stochastic simulation and projection approaches: we use simulation to approximate the ergodic measure of the solution, we construct a fixed grid covering the support of the constructed ergodic measure, and we use projection techniques to accurately solve the model on that grid. The grid construction is the key novel piece of our analysis: we select an ε-distinguishable subset of simulated points that covers the support of the ergodic measure roughly uniformly. The proposed algorithm is tractable in problems with high dimensionality (hundreds of state variables) on a desktop computer. As an illustration, we solve one- and multicountry neoclassical growth models and a large-scale new Keynesian model with a zero lower bound on nominal interest rates.

Suggested Citation

Judd, Kenneth L. and Maliar, Lilia and Maliar, Serguei, Merging Simulation and Projection Approaches to Solve High-Dimensional Problems (November 2012). NBER Working Paper No. w18501, Available at SSRN: https://ssrn.com/abstract=2170626

Kenneth L. Judd (Contact Author)

Stanford University - The Hoover Institution on War, Revolution and Peace ( email )

Stanford, CA 94305-6010
United States

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lilia Maliar

CUNY The Graduate Center - Department of Economics ( email )

365 Fifth Avenue, 5th Floor
New York, NY 10016
United States

Serguei Maliar

Universidad de Alicante - Departamento de Fundamentos del Analisis Economico ( email )

Campus de San Vicente
Ap. Correos 99
03080 Alicante
Spain

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

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