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

See all articles by Ayşe Kabukcuoglu Dur

Ayşe Kabukcuoglu Dur

North Carolina State University; North Carolina State University - Department of Economics

Enrique Martínez-García

Federal Reserve Bank of Dallas - Research Department

Date Written: April 10, 2020

Abstract

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

Suggested Citation

Kabukçuoğlu Dur, Ayşe and Kabukçuoğlu Dur, Ayşe and Martinez-Garcia, Enrique, A Generalized Time Iteration Method for Solving Dynamic Optimization Problems with Occasionally Binding Constraints (April 10, 2020). Globalization Institute Working Paper 396, August 2020, Available at SSRN: https://ssrn.com/abstract=3679251 or http://dx.doi.org/10.2139/ssrn.3679251

Ayşe Kabukçuoğlu Dur

North Carolina State University ( email )

2801 Founders Dr
Raleigh, NC 27695
United States

HOME PAGE: http://aysekabukcuoglu.weebly.com

North Carolina State University - Department of Economics ( email )

Raleigh, NC 27695-8110
United States

HOME PAGE: http://aysedur.com

Enrique Martinez-Garcia (Contact Author)

Federal Reserve Bank of Dallas - Research Department ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States
214-922-5262 (Phone)

HOME PAGE: http://sites.google.com/view/emgeconomics

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