Cyclic Variables and Infinite Horizon Structural Dynamic Models
14 Pages Posted: 19 Jun 2015 Last revised: 9 Feb 2019
Date Written: March 8, 2016
In this paper I develop Cyclic Value Function Iteration (CVFI), which is an adjustment to standard value function iteration. When using this algorithm, the inclusion of cyclic variables of any size into the state space of an infinite horizon dynamic structural model does not increase the computational complexity of solving for the value function. This result is proven theoretically and shown to closely hold in practice using Monte Carlo simulations.
Keywords: Structural Dynamic Models, Infinite-Horizon Dynamic Programming, Econometrics, Cyclic Variables, Seasonality
Suggested Citation: Suggested Citation