Inequality Constraints and Euler Equation-based Solution Methods

• 成果类型: Article
• 署名作者: Rendahl, Pontus
• 署名单位: University of Cambridge; Centre for Economic Policy Research - UK
• 刊物名称: ECONOMIC JOURNAL
• ISSN/ISSBN: 0013-0133
• DOI: 10.1111/ecoj.12115
• 发表日期: 2015
• 页码: 1110-1135
• 关键词: stochastic growth-model; business cycles; equilibrium; ECONOMY; credit; CHOICE; income

摘要

Solving dynamic models with inequality constraints poses a challenging problem for two major reasons: dynamic programming techniques are reliable but often slow, whereas Euler equation-based methods are faster but have problematic or unknown convergence properties. This study attempts to bridge this gap. I show that a common iterative procedure on the first-order conditions - usually referred to as time iteration - delivers a sequence of approximate policy functions that converges to the true solution under a wide range of circumstances. These circumstances extend to a large set of endogenous and exogenous state variables as well as a very broad spectrum of occasionally binding constraints.