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

  • Giulio Fella

    (Queen Mary University of London)

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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File URL: http://dx.doi.org/10.1016/j.red.2013.07.001
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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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