TY  - JOUR
AU  - Malin,Benjamin
AU  - Krueger,Dirk
AU  - Kubler,Felix
TI  - Computing Stochastic Dynamic Economic Models with a Large Number of State Variables: A Description and Application of a Smolyak-Collocation Method
JF  - National Bureau of Economic Research Technical Working Paper Series
VL  - No. 345
PY  - 2007
Y2  - October 2007
UR  - http://www.nber.org/papers/t0345
L1  - http://www.nber.org/papers/t0345.pdf
N1  - Author contact info:
Benjamin Malin
Federal Reserve Bank of Minneapolis
90 Hennepin Ave
Minneapolis, MN 55401
Tel: 612-204-5499
E-Mail: benjamin.malin@mpls.frb.org

Dirk Krueger
Economics Department
University of Pennsylvania
160 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
Tel: 215/898-6691
Fax: 215/573-2057
E-Mail: dkrueger@econ.upenn.edu

Felix Kubler
University of Zurich
Plattenstrasse 32
CH-8032 Zurich
Switzerland
E-Mail: fkubler@gmail.com
AB  - We describe a sparse grid collocation algorithm to compute recursive solutions of dynamic economies with a sizable number of state variables. We show how powerful this method may be in applications by computing the nonlinear recursive solution of an international real business cycle model with a substantial number of countries, complete insurance markets and frictions that impede frictionless international capital flows. In this economy the aggregate state vector includes the distribution of world capital across different countries as well as the exogenous country-specific technology shocks. We use the algorithm to efficiently solve models with 2, 4, and 6 countries (i.e., up to 12 continuous state variables).
ER  -