Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 276: Approximate dynamic programming with postdecision states as a solution method for dynamic economic models
Isaiah Hull (isaiah.hull@riksbank.se)
Additional contact information
Isaiah Hull: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, 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.
Keywords: Numerical Solutions; Approximations; Heterogeneous Agents; Nonlinear Numerical Solutions; Dynamic Programming
56 pages, September 1, 2013
Full text files
rap_wp276_130919.pdf
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