Working Paper: NBER ID: w28502
Authors: Yongyang Cai; Kenneth L. Judd
Abstract: We introduce a novel simulated certainty equivalent approximation (SCEQ) method for solving dynamic stochastic problems. Our examples show that this method only requires a desktop computer to solve high-dimensional finite- or infinite-horizon, stationary or nonstationary dynamic stochastic problems with hundreds of state variables, a wide state space, and occasionally binding constraints. The SCEQ method is simple, stable, and efficient, which makes it suitable for solving complex economic problems that cannot be solved by other algorithms.
Keywords: Simulated Certainty Equivalent Approximation; Dynamic Stochastic Problems; High-Dimensional Models; Economic Modeling
JEL Codes: C61; C63; C68; E31; E52; Q54; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| SCEQ method (C20) | solving high-dimensional dynamic stochastic problems (C61) |
| SCEQ method (C20) | does not suffer from the curse of dimensionality (C52) |
| SCEQ method (C20) | provides stable numerical solutions (C62) |
| SCEQ method (C20) | solves complex models in a reasonable timeframe (C60) |