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DSICE: A Dynamic Stochastic Integrated Model of Climate and EconomyYongyang CaiStanford University - The Hoover Institution on War, Revolution and Peace; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP); National Bureau of Economic Research (NBER) Kenneth L. JuddStanford University - The Hoover Institution on War, Revolution and Peace; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP); National Bureau of Economic Research (NBER) Thomas S. LontzekUniversity of Zurich; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) January 18, 2012 RDCEP Working Paper No. 12-02 Abstract: This paper introduces a dynamic stochastic integrated model of climate and economy (DSICE), and a numerical dynamic programming algorithm for its solution. More specifically, we solve an example with annual time periods, a six hundred year horizon, and shocks to the economic and climate system. Our dynamic programming methods solve such models on a laptop in about an hour, and do so with good accuracy. This decisively refutes the pessimism one often hears about the possibility of solving such models.
Number of Pages in PDF File: 34 Keywords: numerical dynamic programming, value function iteration, tipping points, stochastic IAM JEL Classification: C63, Q54, D81 working papers seriesDate posted: January 27, 2012Suggested CitationContact Information
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