Strong Convergence and Dynamic Economic Models
28 Pages Posted: 28 Apr 2016 Last revised: 10 Jun 2018
Date Written: April 1, 2018
Morton and Wecker (1977) stated that the value iteration algorithm solves a dynamic program's policy function faster than its value function when the limiting Markov chain is ergodic. I show that their proof is incomplete, and provide a new proof of this classic result. I use this result to accelerate the estimation of Markov decision processes and the solution of Markov perfect equilibria.
Keywords: Markov decision process; Markov perfect equilibrium; strong convergence; dynamic discrete choice; nested fixed point; nested pseudo-likelihood
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