A general endogenous grid method for multi-dimensional models with non-convexities and constraints

Journal of Economic Dynamics and Control, 2017, vol. 74, issue C, 87-107

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.

Keywords: Endogenous grid method; Post-decision states; Stochastic dynamic programming; Continuous and discrete choices; Occasionally binding constraints (search for similar items in EconPapers)
JEL-codes: C13 C63 D91 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188916301920
Full text for ScienceDirect subscribers only

Related works:
Working Paper: A General Endogenous Grid Method for Multi-Dimensional Models with Non-Convexities and Constraints (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:74:y:2017:i:c:p:87-107

DOI: 10.1016/j.jedc.2016.11.005

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().