Scalable Global Solution Techniques for High-Dimensional Models in Dynare

Aryan Eftekhari, Michel Juillard, Normann Rion and Simon Scheidegger

Papers from arXiv.org

Abstract: For over three decades, Dynare has been a cornerstone of dynamic stochastic modeling in economics, relying primarily on perturbation-based local solution methods. However, these techniques often falter in high-dimensional, non-linear models that demand more comprehensive approaches. This paper demonstrates that global solutions of economic models with substantial heterogeneity and frictions can be computed accurately and swiftly by augmenting Dynare with adaptive sparse grids (SGs) and high-dimensional model representation (HDMR). SGs mitigate the curse of dimensionality, as the number of grid points grows significantly slower than in traditional tensor-product Cartesian grids. Additionally, adaptivity focuses grid refinement on regions with steep gradients or non-differentiabilities, enhancing computational efficiency. Complementing SGs, HDMR tackles large state spaces by approximating policy functions with a hierarchical expansion of low-dimensional terms. Using a time iteration algorithm, we benchmark our approach on an international real business cycle model. Our results show that both SGs and HDMR alleviate the curse of dimensionality, enabling accurate solutions for at least 100-dimensional models on standard hardware in relatively short times. This advancement extends Dynare's capabilities beyond perturbation approaches, establishing a versatile platform for sophisticated non-linear models and paving the way for integrating the most recent global solution methods, such as those from machine learning.

Date: 2025-03
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