A Simple but Powerful Simulated Certainty Equivalent Approximation Method for Dynamic Stochastic Problems

Yongyang Cai and Kenneth Judd

No 28502, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: C61 C63 C68 E31 E52 Q54 Q58 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-cmp, nep-mac and nep-ore
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Published as Yongyang Cai & Kenneth L. Judd, 2023. "A simple but powerful simulated certainty equivalent approximation method for dynamic stochastic problems," Quantitative Economics, Econometric Society, vol. 14(2), pages 651-687, May.

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