A nonlinear certainty equivalent approximation method for dynamic stochastic problems

作者：Cai Yongyang; Judd Kenneth; Steinbuks Jevgenijs

来源：QUANTITATIVE ECONOMICS, 2017, 8(1): 117-147.

DOI：10.3982/QE533

• New Keynesian DSGE model
• competitive equilibrium
• parallel computing
• sparse grid approximation
• real business cycle model

This paper introduces a nonlinear certainty-equivalent approximation method for dynamic stochastic problems. We first introduce a novel, stable, and efficient method for computing the decision rules in deterministic dynamic economic problems. We use the results as nonlinear and global certainty-equivalent approximations for solutions to stochastic problems, and compare their accuracy to the common linear and local certainty-equivalent methods. Our examples demonstrate that this method can be applied to solve high-dimensional problems with up to 400 state variables with acceptable accuracy. This method can also be applied to solve problems with inequality constraints. These features make the nonlinear certainty-equivalent approximation method suitable for solving complex economic problems, where other algorithms, such as log-linearization, fail to produce a valid global approximation or are far less tractable.

• 出版日期2017-3