Solving DSGE Models Without a Grid

47 Pages Posted: 24 Oct 2013

See all articles by Oren Levintal

Oren Levintal

Interdisciplinary Center (IDC) Herzliyah

Date Written: October 20, 2013

Abstract

This paper presents a global solution method to DSGE models, which does not depend on a grid and hence does not suffer from the curse of dimensionality. The method enables to approximate the Taylor series of the policy function at any arbitrary point of the state space. Once the Taylor series is approximated at a given point, the constant term of the series provides the model solution at that point. Since the solution is not based on a grid, the computational costs are significantly lower compared to grid-based methods, because the model is solved only at points of interests (e.g. along a simulation path). Accuracy is high, compared to other methods, and it improves significantly by discretizing time into short periods.

Keywords: Taylor projection, DSGE, Taylor series, projection, perturbation, approximation, computational methods, numerical methods, tensors

JEL Classification: C61, C68, E12, E13, E17

Suggested Citation

Levintal, Oren, Solving DSGE Models Without a Grid (October 20, 2013). Available at SSRN: https://ssrn.com/abstract=2344258 or http://dx.doi.org/10.2139/ssrn.2344258

Oren Levintal (Contact Author)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

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