Global DSGE Models

Abstract

We introduce our GDSGE framework and a novel global solution method, called simultaneous transition and policy function iterations (STPFIs), for solving dynamic stochastic general equilibrium models. The framework encompasses many well-known incomplete markets models with highly nonlinear dynamics such as models of financial crises and models with rare disasters including the current COVID-19 pandemic. Using consistency equations, our method is most effective at solving models featuring endogenous state variables with implicit laws of motion such as wealth or consumption shares. Finally, we incorporate this method in an automated and publicly available toolbox that solves many important models in the aforementioned topics, and in many cases, more efficiently or accurately than their original algorithms.

Keywords: nonlinear DSGE models, incomplete markets, financial crises, rare disasters, global solution method, computation toolbox, implicit law-of-motions, consistency equations

JEL Classification: C62, C63, C68, D50, D90, E00, F30, F40, G01, G10