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A generalized endogenous grid method for non-smooth and non-concave problems

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  • Giulio Fella

    (Queen Mary University of London)

Abstract

This paper extends Carroll's (2006) endogenous grid method and its combination with value function iteration by Barillas and Fernandez-Villaverde (2007) to a class of dynamic programming problems, such as problems with both discrete and continuous choices, in which the value function is non-smooth and non-concave. The method is illustrated using a consumer problem in which the consumer chooses both durable and non-durable consumption subject to a borrowing constraint. The durable choice is discrete and subject to non-convex adjustment costs. The algorithm yields substantial gains in accuracy and computational time relative to value function iteration, the standard solution choice for problems in which the value function is non-smooth or non-concave. (Copyright: Elsevier)

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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 17 (2014)
Issue (Month): 2 (April)
Pages: 329-344

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Handle: RePEc:red:issued:11-275

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Keywords: Endogenous grid method; Non-concavity;

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Cited by:
  1. Christoph Görtz & Afrasiab Mirza, 2014. "On the Applicability of Global Approximation Methods for Models with Jump Discontinuities in Policy Functions," CESifo Working Paper Series 4837, CESifo Group Munich.
  2. Cristina Arellano & Lilia Maliar & Serguei Maliar & Viktor Tsyrennikov, 2014. "Envelope Condition Method with an Application to Default Risk Models," BYU Macroeconomics and Computational Laboratory Working Paper Series, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory 2014-04, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory.

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