Cyclic Variables and Infinite Horizon Structural Dynamic Models

14 Pages Posted: 19 Jun 2015 Last revised: 9 Feb 2019

See all articles by Avery Haviv

Avery Haviv

University of Rochester - Simon Business School

Date Written: March 8, 2016

Abstract

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

Haviv, Avery, Cyclic Variables and Infinite Horizon Structural Dynamic Models (March 8, 2016). Simon Business School Working Paper No. FR 15-22. Available at SSRN: https://ssrn.com/abstract=2610940 or http://dx.doi.org/10.2139/ssrn.2610940

Avery Haviv (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

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