Analysis of a numerical dynamic programming algorithm applied to economic models

Manuel Santos, Jesús Vigo-Aguiar

Research output: Contribution to journalArticle

72 Citations (Scopus)

Abstract

In this paper we develop a discretized version of the dynamic programming algorithm and study its convergence and stability properties. We show that the computed value function converges quadratically to the true value function and that the computed policy function converges linearly, as the mesh size of the discretization converges to zero; further, the algorithm is stable. We also discuss several aspects of the implementation of our procedures as applied to some commonly studied growth models.

Original languageEnglish (US)
Pages (from-to)409-426
Number of pages18
JournalEconometrica
Volume66
Issue number2
StatePublished - Mar 1998
Externally publishedYes

Fingerprint

Economic Model
economic model
Dynamic Programming
programming
Converge
Value Function
Stability and Convergence
Growth Model
Linearly
Discretization
Mesh
Zero
Numerical dynamic programming
Value function
Dynamic programming
Policy function
Growth model

Keywords

  • Computation
  • Dynamic programming
  • Error bounds

ASJC Scopus subject areas

  • Economics and Econometrics
  • Mathematics (miscellaneous)
  • Statistics and Probability
  • Social Sciences (miscellaneous)

Cite this

Analysis of a numerical dynamic programming algorithm applied to economic models. / Santos, Manuel; Vigo-Aguiar, Jesús.

In: Econometrica, Vol. 66, No. 2, 03.1998, p. 409-426.

Research output: Contribution to journalArticle

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