Solving, Estimating, and Selecting Nonlinear Dynamic Models Without the Curse of Dimensionality

Viktor Winschel and Markus Kr‰tzig
Authors registered in the RePEc Author Service: Markus Krätzig

Econometrica, 2010, vol. 78, issue 2, 803-821

Abstract: We present a comprehensive framework for Bayesian estimation of structural nonlinear dynamic economic models on sparse grids to overcome the curse of dimensionality for approximations. We apply sparse grids to a global polynomial approximation of the model solution, to the quadrature of integrals arising as rational expectations, and to three new nonlinear state space filters which speed up the sequential importance resampling particle filter. The posterior of the structural parameters is estimated by a new Metropolis-Hastings algorithm with mixing parallel sequences. The parallel extension improves the global maximization property of the algorithm, simplifies the parameterization for an appropriate acceptance ratio, and allows a simple implementation of the estimation on parallel computers. Finally, we provide all algorithms in the open source software JBendge for the solution and estimation of a general class of models. Copyright 2010 The Econometric Society.

Date: 2010
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Working Paper: Solving, estimating and selecting nonlinear dynamic models without the curse of dimensionality (2008)
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