Accuracy, Speed and Robustness of Policy Function Iteration
| Autor: | Nathaniel A. Throckmorton, Todd B. Walker, Alexander W. Richter |
|---|---|
| Rok vydání: | 2013 |
| Předmět: |
Mathematical optimization
Epstein–Zin preferences General equilibrium theory jel:C63 Computer science Fortran jel:E62 Policy function iteration Zero lower bound Epstein-Zin preferences Markov switching Chebyshev polynomials Real business cycle model New Keynesian model Economics Econometrics and Finance (miscellaneous) jel:C68 jel:E52 Function (mathematics) computer.file_format Linear interpolation Grid Computer Science Applications Fixed-point iteration Robustness (computer science) Dynamic stochastic general equilibrium Executable MATLAB computer computer.programming_language |
| Zdroj: | Computational Economics. 44:445-476 |
| ISSN: | 1572-9974 0927-7099 |
| DOI: | 10.1007/s10614-013-9399-2 |
| Popis: | Policy function iteration methods for solving and analyzing dynamic, stochastic general equilibrium models are powerful from both a theoretical and computational perspective. Despite obvious theoretical appeal, significant startup costs and a reliance on a grid-based method have limited the use of policy function iteration as a solution algorithm. We reduce these costs by providing a user-friendly suite of MATLAB functions that introduce multi-core processing and Fortran via MATLAB's executable function. We demonstrate why policy function iteration is particularly useful in solving models with regime-dependent parameters, recursive preferences, and binding constraints. We examine a canonical real business cycle model and a new Keynesian model that features regime switching in policy parameters, Epstein-Zin preferences, and monetary policy that occasionally hits the zero-lower bound to highlight the attractiveness of our methodology. We compare our advocated approach to other familiar computational methods, highlighting the tradeoffs between accuracy and speed. |
| Databáze: | OpenAIRE |
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