The Endogenous Grid Method without Analytical Inverse Marginal Utility

Adam Hallengreen, Thomas H. Joergensen and Annasofie M. Olesen
Additional contact information
Adam Hallengreen: Department of Economics, University of Copenhagen
Thomas H. Joergensen: Department of Economics, University of Copenhagen
Annasofie M. Olesen: Department of Economics, University of Copenhagen

No 24-11, CEBI working paper series from University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI)

Abstract: The computational time required to solve and estimate dynamic economic models is one of the main constraints in empirical research. The Endogenous Grid Method (EGM) proposed by Carroll (2006) is known to offer impressive speed gains over more traditional stochastic dynamic programming methods, such as Value Function Iterations (VFI). However, existing EGM implementations implicitly require an analytical expression for the inverse marginal utility, which is not known in many interesting cases. We propose a simple and fast approach, which we refer to as the interpolated EGM (iEGM), that can be applied even when the inverse marginal utility is not known analytically. We show through two applications that the iEGM inherits the speed andaccuracy of the EGM and that our approach is an order of magnitude faster than traditionalapproaches.

Keywords: Endogenous grid method; dynamic programming; numerical methods; limited commitment (search for similar items in EconPapers)
JEL-codes: C61 C63 C78 D13 D15 (search for similar items in EconPapers)
Pages: 25
Date: 2024-05-16
New Economics Papers: this item is included in nep-dge and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econ.ku.dk/cebi/publikationer/working-papers/CEBI_WP_11-24.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kud:kucebi:2411

Access Statistics for this paper

More papers in CEBI working paper series from University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI) Oester Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Hoffmann ().