This paper proposes an algorithm for exploiting the localized response of power system components to accelerate dynamic simulations. During the simulation, components marginally participating to the system dynamics are characterized as latent and their dynamic models are replaced by much simpler equivalents. At the same time, components with significant dynamic activity are characterized as active and their original dynamic models are used. Based on the criterion proposed, components switch status between active and latent to increase performance while retaining accuracy. Two realistic test systems, a medium-scale and a large-scale, are used for the performance evaluation of the proposed method.