Value Function Iteration as a Solution Method for the Ramsey Model

30 Pages Posted: 15 Apr 2008

See all articles by Burkhard Heer

Burkhard Heer

University of Augsburg; CESifo (Center for Economic Studies and Ifo Institute)

Alfred Maussner

University of Augsburg - Faculty of Business and Economics

Date Written: April 2008

Abstract

Value function iteration is one of the standard tools for the solution of the Ramsey model. We compare six different ways of value function iteration with regard to speed and precision. We find that value function iteration with cubic spline interpolation between grid points dominates the other methods in most cases. For the initialization of the value function over a fine grid, modified policy function iteration over a coarse grid and subsequent linear interpolation between the grid points provides a very efficient way to reduce computational time.

Keywords: value function iteration, policy function iteration, Howard¿s algorithm,

JEL Classification: C63, C68, E32

Suggested Citation

Heer, Burkhard and Maussner, Alfred, Value Function Iteration as a Solution Method for the Ramsey Model (April 2008). CESifo Working Paper Series No. 2278. Available at SSRN: https://ssrn.com/abstract=1120686

Burkhard Heer (Contact Author)

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Alfred Maussner

University of Augsburg - Faculty of Business and Economics ( email )

Universitaetsstr. 16
86135 Augsburg
Germany
+49 821 598 4187 (Phone)
+49 821 598 4231 (Fax)

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