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Approximate dynamic programming with postdecision states as a solution method for dynamic economic models

Listed author(s):
  • Hull, Isaiah

    ()

    (Monetary Policy Department, Central Bank of Sweden)

I introduce and evaluate a new stochastic simulation method for dynamic economic models. It is based on recent work in the operations research and engineering literatures (Van Roy et. al, 1997; Powell, 2007; Bertsekas, 2011). The baseline method involves rewriting the household's dynamic program in terms of post-decision states. This makes it possible to choose controls optimally without computing an expectation. I add a subroutine to the original algorithm that updates the values of states not visited frequently on the simulation path; and adopt a stochastic stepsize that efficiently weights information. Finally, I modify the algorithm to exploit GPU computing.

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File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2013/rap_wp276_130919.pdf
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Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 276.

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Length: 56 pages
Date of creation: 01 Sep 2013
Handle: RePEc:hhs:rbnkwp:0276
Contact details of provider: Postal:
Sveriges Riksbank, SE-103 37 Stockholm, Sweden

Phone: 08 - 787 00 00
Fax: 08-21 05 31
Web page: http://www.riksbank.com/
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