2/n While (ii) can be a real advantage, (i) is NOT.
Yet the latter is way too much overemphasized...
Let me explain why.
Yet the latter is way too much overemphasized...
Let me explain why.
Comments
If we believe economics is a science & that our research should be taken seriously to design policies that can cause 100s of billions or trillions of $$ in costs or savings, the speed of an algorithm is largely irrelevant.
The #1 priority is ACCURACY.
Do we think macro research is less consequential? The global financial cost of 2008 Global Crisis is estimated to be ~$2 trillion.
So, an algo that solves K-S in 10 secs vs. 10 minutes means nothing - unless it’s accurate.
This brings us to Accuracy for Large Shocks... -->
Background:
In HA models, linearization-based methods start with Reiter (JEDC, 2009). It is nonlinear in individual states but imposes linearity in aggr states. It solves Khan & Thomas (ECMA, 2008) model about 100x faster than Krusell-Smith method.