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Approximate dynamic programming with post-decision states as a solution method for dynamic economic models

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  • Hull, Isaiah
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), but also had an early application in economics (Wright and Williams, 1982, 1984). 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.

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  • Hull, Isaiah, 2015. "Approximate dynamic programming with post-decision states as a solution method for dynamic economic models," Journal of Economic Dynamics and Control, Elsevier, vol. 55(C), pages 57-70.
    • Handle: RePEc:eee:dyncon:v:55:y:2015:i:c:p:57-70
    DOI: 10.1016/j.jedc.2015.03.008
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    1. Hull, Isaiah, 2015. "Approximate dynamic programming with post-decision states as a solution method for dynamic economic models," Journal of Economic Dynamics and Control, Elsevier, vol. 55(C), pages 57-70.
    2. 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.
    3. Michael R. Springborn & Amanda Faig & Allison Dedrick & Marissa L. Baskett, 2020. "Beyond Biomass: Valuing Genetic Diversity in Natural Resource Management," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(2), pages 607-624, March.
    4. Jeppe Druedahl, 2021. "A Guide on Solving Non-convex Consumption-Saving Models," Computational Economics, Springer;Society for Computational Economics, vol. 58(3), pages 747-775, October.

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    More about this item

    Keywords

    Numerical solutions; Approximations; Heterogeneous agents; Nonlinear numerical solutions; Dynamic programming;
    All these keywords.

    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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