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A Generalized Endogenous Grid Method for Non-concave Problems

This paper extends Carroll's (2006) endogenous grid method and its combination with value function iteration by Barillas and Fern�ndez-Villaverde (2007) to non-concave problems. The method is illustrated using a consumer problem in which consumers choose both durable and non-durable consumption. 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 non-concave problems.

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File URL: http://www.econ.qmul.ac.uk/papers/doc/wp677.pdf
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Paper provided by Queen Mary University of London, School of Economics and Finance in its series Working Papers with number 677.

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Date of creation: May 2011
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Handle: RePEc:qmw:qmwecw:wp677
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  1. Patrick Bajari & Phoebe Chan & Dirk Krueger & Daniel Miller, 2010. "A Dynamic Model of Housing Demand: Estimation and Policy Implications," NBER Working Papers 15955, National Bureau of Economic Research, Inc.
  2. Aaron S. Edlin and Chris Shannon., 1995. "Strict Monotonicity in Comparative Statics," Economics Working Papers 95-238, University of California at Berkeley.
  3. Aubhik Khan & Julia K. Thomas, 2004. "Idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics," Working Papers 04-15, Federal Reserve Bank of Philadelphia.
  4. Storesletten, Kjetil & Telmer, Chris & Yaron, Amir, 2002. "Consumption and Risk Sharing Over the Life Cycle," Seminar Papers 702, Stockholm University, Institute for International Economic Studies.
  5. Giovanni Gallipoli & Giulio Fella, 2006. "Education and Crime over the Lifecycle," Computing in Economics and Finance 2006 192, Society for Computational Economics.
  6. Andrew Clausen & Carlo Strub, 2012. "Envelope theorems for non-smooth and non-concave optimization," ECON - Working Papers 062, Department of Economics - University of Zurich.
  7. Hintermaier, Thomas & Koeniger, Winfried, 2010. "The method of endogenous gridpoints with occasionally binding constraints among endogenous variables," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 2074-2088, October.
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