Error Bounds for a Numerical Solution for Dynamic Economic Models

Manuel Santos and Jesus Vigo ()
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Jesus Vigo: Departamento de Economia, Universidad de Salamanca

No 9504, Working Papers from Centro de Investigacion Economica, ITAM

Abstract: In this paper we analyze a discretized version of the dynamic programming algorithm for a parameterized family of infinite-horizon economic models, and derive error bounds for the approximate value and policy functions. If h is the mesh size of the discretization, then the approximation error for the value function is bounded by Mh^2, and the approximation error for the policy function is bounded by $Nh,$ where the constants $M$ and $N$ can be estimated from primitive data of the model.

Keywords: Dynamic Programming; Value and Policy Functions; Numerical Solutions; Error Bounds (search for similar items in EconPapers)
Pages: 9 pages
Date: 1995-08
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Persistent link: https://EconPapers.repec.org/RePEc:cie:wpaper:9504

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