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The method of endogenous gridpoints with occasionally binding constraints among endogenous variables

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  • Thomas Hintermaier

    (Department of Economics - Rheinische Friedrich-Wilhelms-Universität Bonn)

  • Winfried Koeniger

    (Department of Economics - UCL - University College of London [London])

Abstract

We show how the method of endogenous gridpoints can be extended to solve models with occasionally binding constraints among endogenous variables very efficiently. We present the method for a consumer problem with occasionally binding collateral constraints and non-separable utility in durable and non-durable consumption. This problem allows for a joint analysis of durable and non-durable consumption in models with uninsurable income risk which is important to understand patterns of consumption, saving and collateralized debt. We illustrate the algorithm and its efficiency by calibrating the model to US data.
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Suggested Citation

  • Thomas Hintermaier & Winfried Koeniger, 2010. "The method of endogenous gridpoints with occasionally binding constraints among endogenous variables," Post-Print hal-00732758, HAL.
    • Handle: RePEc:hal:journl:hal-00732758
    DOI: 10.1016/j.jedc.2010.05.002
    Note: View the original document on HAL open archive server: https://hal.science/hal-00732758
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