Value Function Iteration as a Solution Method for the Ramsey Model
-
Burkhard Heer
und
Alfred Maußner
Summary
Value function iteration is one of the standard tools for the solution of dynamic general equilibrium models if the dimension of the state space is one ore two. We consider three kinds of models: the deterministic and the stochastic growth model and a simple heterogenous agent model. Each model is solved with six different algorithms: (1) simple value function iteration as compared to (2) smart value function iteration neglects the special structure of the problem. (3) Full and (4) modified policy iteration are methods to speed up convergence. (5) linear and (6) cubic interpolation between the grid points are methods that enhance precision and reduce the size of the grid. We evaluate the algorithms with respect to speed and accuracy. Accuracy is defined as the maximum absolute value of the residual of the Euler equation that determines the household’s savings. We demonstrate that the run time of all algorithms can be reduced substantially if the value function is initialized stepwise, starting on a coarse grid and increasing the number of grid points successively until the desired size is reached.We find that value function iteration with cubic spline interpolation between grid points dominates the other methods if a high level of accuracy is needed.
© 2011 by Lucius & Lucius, Stuttgart
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Artikel in diesem Heft
- Inhalt / Contents
- Abhandlungen / Original Papers
- Extending the Case for a Beneficial Brain Drain
- Searching for the Concentration-Price Effect in the German Movie Theater Industry
- Value Function Iteration as a Solution Method for the Ramsey Model
- Purchasing-power-dependent Preferences as a New Explanation of Giffen Behaviour: A Note
- Changes in Import Pricing Behaviour: Evidence for Germany
- Robust Estimation of Linear Fixed Effects Panel Data Models with an Application to the Exporter Productivity Premium
- Diskussionsbeitrag / Discussion Paper. Finanzverwaltung von innen: Neue Ansätze ihrer empirisch-ökonomischen Erforschung
- Buchbesprechungen / Book Reviews
