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The Method of Endogenous Gridpoints in Theory and Practice

Matthew White ()

No 15-03, Working Papers from University of Delaware, Department of Economics

Abstract: The method of endogenous gridpoints (ENDG) significantly speeds up the solution to dynamic stochastic optimization problems with continuous state and control variables by avoiding repeated computations of expected outcomes while searching for optimal policy functions. While the method has been used in specific settings with one endogenous state dimension and one control, it has never been characterized for use in n-dimensional models. Using a general theoretical framework for dynamic stochastic optimization problems, I formalize the method of endogenous gridpoints and present conditions for the class of models that can be solved using ENDG. The framework is applied to several example models to show the breadth of problems for which endogenous gridpoints can be used. Further, I provide an interpolation technique for non-rectilinear grids that allows ENDG to be used in n-dimensional problems in an intuitive and computationally educient way. Relative to the traditional approach, the method of endogenous gridpoints with non-linear grid interpolation" solves a benchmark 2D model 7.0 to 7.8 times faster than the traditional solution method.

Keywords: Dynamic models; numerical solution; endogenous gridpoint method; non-linear grid interpolation; endogenous human capital; durable goods (search for similar items in EconPapers)
JEL-codes: C61 C63 E21 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2015
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
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