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

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  • Hull, Isaiah

    () (Monetary Policy Department, Central Bank of Sweden)

Abstract

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.

Suggested Citation

  • Hull, Isaiah, 2013. "Approximate dynamic programming with postdecision states as a solution method for dynamic economic models," Working Paper Series 276, Sveriges Riksbank (Central Bank of Sweden).
  • Handle: RePEc:hhs:rbnkwp:0276
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    File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2013/rap_wp276_130919.pdf
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    References listed on IDEAS

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    Cited by:

    1. Druedahl, Jeppe & Jørgensen, Thomas Høgholm, 2017. "A general endogenous grid method for multi-dimensional models with non-convexities and constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 74(C), pages 87-107.

    More about this item

    Keywords

    Numerical Solutions; Approximations; Heterogeneous Agents; Nonlinear Numerical Solutions; Dynamic Programming;

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • 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
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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