A Generalized Time Iteration Method for Solving Dynamic Optimization Problems with Occasionally Binding Constraints
Globalization Institute Working Paper 396, August 2020
28 Pages Posted: 13 Oct 2020
Date Written: April 10, 2020
We study a generalized version of Coleman (1990)’s time iteration method (GTI) for solving dynamic optimization problems. Our benchmark framework is an irreversible investment model with labor-leisure choice. The GTI algorithm is simple to implement and provides advantages in terms of speed relative to Howard (1960)’s improvement algorithm. A second application on a heterogeneous-agents incomplete-markets model further explores the performance of GTI.
Keywords: General equilibrium models, Occasionally binding constraints, Computational methods, Time iteration; Policy function iteration, Endogenous grid
JEL Classification: C6, C61, C63, C68
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