Numerical Policy Error Bounds for $$\eta $$ η -Concave Stochastic Dynamic Programming with Non-interior Solutions

Huiyu Li

Computational Economics, 2015, vol. 46, issue 2, 187 pages

Abstract: This paper derives explicit error bounds for numerical policies of $$\eta $$ η -concave stochastic dynamic programming problems, without assuming the optimal policy is interior. We demonstrate the usefulness of our error bound by using it to pinpoint the states at which the borrowing constraint binds in a widely used income fluctuation problem with standard calibrations and a firm production problem with financial constraints. Copyright Springer Science+Business Media New York 2015

Keywords: Accuracy test; Computable policy error bound; Noninterior solution; Euler equation error; C63; E21 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s10614-014-9460-9

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