Taking Perturbation to the Accuracy Frontier: A Hybrid of Local and Global Solutions

Authors:
Lilia Maliar;Serguei Maliar;Sébastien Villemot
Affiliations:
Hoover Institution at Stanford University, Stanford, USA and University of Alicante, Alicante, Spain;Hoover Institution at Stanford University, Stanford, USA and University of Alicante, Alicante, Spain;CEPREMAP, Paris School of Economics, Paris, France
Venue:
Computational Economics
Year:
2013

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Abstract

Local (perturbation) methods compute solutions in one point and tend to deliver far lower accuracy levels than global solution methods. We develop a hybrid method that solves for some policy functions locally (using a perturbation method) and that solves for the other policy functions globally (using closed-form expressions and a numerical solver). We applied our hybrid method to solve large-scale RBC models used in the comparison analysis of Kollmann et al. (J Econ Dyn Control 35:186---202, 2011b). We obtain more accurate solutions than those produced by any other (either local or global) solution method participating in that comparison. Our running time is a few seconds.