Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098032 | Journal of Economic Dynamics and Control | 2017 | 21 Pages |
Abstract
The endogenous grid method (EGM) significantly speeds up the solution of stochastic dynamic programming problems by simplifying or completely eliminating root-finding. We propose a general and parsimonious EGM extended to handle (1) multiple continuous states and choices, (2) multiple occasionally binding constraints, and (3) non-convexities such as discrete choices. Our method enjoys the speed gains of the original one-dimensional EGM, while avoiding expensive interpolation on multi-dimensional irregular endogenous grids. We explicitly define a broad class of models for which our solution method is applicable, and illustrate its speed and accuracy using a consumption-saving model with both liquid assets and illiquid pension assets and a discrete retirement choice.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Jeppe Druedahl, Thomas Høgholm Jørgensen,