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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)

Suggested Citation

  • Giulio Fella, 2014. "A generalized endogenous grid method for non-smooth and non-concave problems," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 329-344, April.
    • Handle: RePEc:red:issued:11-275
    DOI: 10.1016/j.red.2013.07.001
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    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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