A Generalized Endogenous Grid Method for Non-Concave Problems
20 Pages Posted: 24 Apr 2011
Date Written: April 21, 2011
This paper extends Carroll’s (2006) endogenous grid method and its combination with value function iteration by Barillas and Fernandez-Villaverde (2007) to non-concave problems. The method is illustrated using a consumer problem in which consumers choose both durable and non-durable consumption. The durable choice is discrete and subject to non-convex adjustment costs. The algorithm yields substantial gains in accuracy and computational time relative to value function iteration, the standard solution choice for non-concave problems.
Keywords: Endogenous grid method, non-concavity
JEL Classification: C63
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