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A Generalized Time Iteration Method for Solving Dynamic Optimization Problems with Occasionally Binding Constraints

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  • Ayşe Kabukçuoğlu

    (North Carolina State University)

  • Enrique Martínez-García

    (Federal Reserve Bank of Dallas)

Abstract

We study a generalized version of Coleman (J Bus Econ Stat 8:27–29, 1990)’s time iteration method (GTI) for solving dynamic optimization problems. Our benchmark framework is an irreversible investment model with labor-leisure choice. The GTI algorithm is simple to implement and provides advantages in terms of speed relative to Howard’s (Dynamic Programming and Markov Processes. MIT Press, Cambridge, MA, 1960) improvement algorithm. A second application on a heterogeneous-agents incomplete-markets model further explores the performance of GTI.

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  • Ayşe Kabukçuoğlu & Enrique Martínez-García, 2021. "A Generalized Time Iteration Method for Solving Dynamic Optimization Problems with Occasionally Binding Constraints," Computational Economics, Springer;Society for Computational Economics, vol. 58(2), pages 435-460, August.
    • Handle: RePEc:kap:compec:v:58:y:2021:i:2:d:10.1007_s10614-020-10037-x
    DOI: 10.1007/s10614-020-10037-x
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    More about this item

    Keywords

    General equilibrium models; Occasionally binding constraints; Computational methods; Time iteration; Policy function iteration; Endogenous grid;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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