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Artificial neural networks to solve dynamic programming problems: A bias-corrected Monte Carlo operator

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  • Julien Pascal

Abstract

Artificial Neural Networks (ANNs) are powerful tools that can solve dynamic programming problems arising in economics. In this context, estimating ANN parameters involves minimizing a loss function based on the model’s stochastic functional equations. In general, the expectations appearing in the loss function admit no closed-form solution, so numerical approximation techniques must be used. In this paper, I analyze a bias-corrected Monte Carlo operator (bc-MC) that approximates expectations by Monte Carlo. I show that the bc-MC operator is a generalization of the all-in-one expectation operator, already proposed in the literature. I propose a method to optimally set the hyperparameters defining the bc-MC operator and illustrate the findings numerically with well-known economic models. I also demonstrate that the bc-MC operator can scale to high-dimensional models. With just a few minutes of computing time, I find a global solution to an economic model with a kink in the decision function and more than 100 dimensions.

Suggested Citation

  • Julien Pascal, 2023. "Artificial neural networks to solve dynamic programming problems: A bias-corrected Monte Carlo operator," BCL working papers 172, Central Bank of Luxembourg.
    • Handle: RePEc:bcl:bclwop:bclwp172
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    References listed on IDEAS

    as
    1. Judd, Kenneth L. & Guu, Sy-Ming, 1997. "Asymptotic methods for aggregate growth models," Journal of Economic Dynamics and Control, Elsevier, vol. 21(6), pages 1025-1042, June.
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    3. Jesús Fernández‐Villaverde & Samuel Hurtado & Galo Nuño, 2023. "Financial Frictions and the Wealth Distribution," Econometrica, Econometric Society, vol. 91(3), pages 869-901, May.
    4. David Silver & Aja Huang & Chris J. Maddison & Arthur Guez & Laurent Sifre & George van den Driessche & Julian Schrittwieser & Ioannis Antonoglou & Veda Panneershelvam & Marc Lanctot & Sander Dieleman, 2016. "Mastering the game of Go with deep neural networks and tree search," Nature, Nature, vol. 529(7587), pages 484-489, January.
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    More about this item

    Keywords

    Dynamic programming; Artificial Neural Network; Machine Learning; Monte Carlo;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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