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A Generalized Endogenous Grid Method for 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 Fern�ndez-Villaverde (2007) to non-concave problems. The method is illustrated using a consumer problem in which consumers choose both durable and non-durable consumption. 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 non-concave problems.

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Bibliographic Info

Paper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 677.

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Date of creation: May 2011
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Handle: RePEc:qmw:qmwecw:wp677

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Keywords: Endogenous grid method; Non-concavity;

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  1. Andrew Clausen & Carlo Strub, 2012. "Envelope theorems for non-smooth and non-concave optimization," ECON - Working Papers 062, Department of Economics - University of Zurich.
  2. Patrick Bajari & Phoebe Chan & Dirk Krueger & Daniel Miller, 2010. "A Dynamic Model of Housing Demand: Estimation and Policy Implications," NBER Working Papers 15955, National Bureau of Economic Research, Inc.
  3. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2000. "Consumption and Risk Sharing Over the Life Cycle," NBER Working Papers 7995, National Bureau of Economic Research, Inc.
  4. Giulio Fella & Giovanni Gallipoli, 2007. "Education and Crime over the Life Cycle," Working Paper Series 15-07, The Rimini Centre for Economic Analysis, revised Jul 2007.
  5. Hintermaier, Thomas & Koeniger, Winfried, 2010. "The method of endogenous gridpoints with occasionally binding constraints among endogenous variables," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 2074-2088, October.
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Cited by:
  1. John Rust & Bertel Schjerning & Fedor Iskhakov, 2012. "A generalized endogenous grid method for discrete-continuous choice," 2012 Meeting Papers 1162, Society for Economic Dynamics.
  2. Jørgensen, Thomas H., 2013. "Structural estimation of continuous choice models: Evaluating the EGM and MPEC," Economics Letters, Elsevier, vol. 119(3), pages 287-290.

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