Working Paper

Reliably Computing Nonlinear Dynamic Stochastic Model Solutions: An Algorithm with Error Formulas


Abstract: This paper provides a new technique for representing discrete time nonlinear dynamic stochastic time invariant maps. Using this new series representation, the paper augments the usual solution strategy with an additional set of constraints thereby enhancing algorithm reliability. The paper also provides general formulas for evaluating the accuracy of proposed solutions. The technique can readily accommodate models with occasionally binding constraints and regime switching. The algorithm uses Smolyak polynomial function approximation in a way which makes it possible to exploit a high degree of parallelism.

Keywords: Mathematical and quantitative methods; Econometric modeling;

JEL Classification: C62; C60; C65; C63;

https://doi.org/10.17016/FEDS.2018.070

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2018-10-11

Number: 2018-070

Pages: 67 pages