NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Nonlinear Certainty Equivalent Approximation Method for Dynamic Stochastic Problems

Yongyang Cai, Kenneth Judd, Jevgenijs Steinbuks

NBER Working Paper No. 21590
Issued in September 2015
NBER Program(s):Technical Working Papers

This paper introduces a nonlinear certainty equivalent approximation method for dynamic stochastic problems. We first use a novel, stable and efficient method for computing the optimal policy functions for deterministic dynamic optimization problems, and then use them as certainty-equivalent approximations for the stochastic versions. Our examples demonstrate that it can be applied to solve high-dimensional problems with up to four hundred state variables with an acceptable accuracy. This method can also be applied to solve problems with inequality constraints that occasionally bind. These features make the nonlinear certainty equivalent approximation method suitable for solving complex economic problems, where other algorithms, such as log-linearization, fail or are far less tractable.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21590

Published: Yongyang Cai & Kenneth Judd & Jevgenijs Steinbuks, 2017. "A nonlinear certainty equivalent approximation method for dynamic stochastic problems," Quantitative Economics, vol 8(1), pages 117-147. citation courtesy of

Users who downloaded this paper also downloaded* these:
Cai, Judd, Lontzek, Michelangeli, and Su w19034 Nonlinear Programming Method for Dynamic Programming
Mullahy w21593 Estimation of Multivariate Probit Models via Bivariate Probit
García-Schmidt and Woodford w21614 Are Low Interest Rates Deflationary? A Paradox of Perfect-Foresight Analysis
Phaneuf, Sims, and Victor w21599 Inflation, Output, and Markup Dynamics with Forward-Looking Wage and Price Setters
Comin, Lashkari, and Mestieri w21595 Structural Change with Long-run Income and Price Effects
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us