The Method of Moderation for Solving Dynamic Stochastic Optimization Problems

Weifeng Wu, Kiichi Tokuoka and Christopher Carroll
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Weifeng Wu: Johns Hopkins University
Kiichi Tokuoka: International Monetary Fund

No 1102, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: We show that using a remapped version of the decision rule for a standard dynamic stochastic optimization problem, where the mapping is defined by asymptotic limits of the rule as uncertainty goes to zero, produces a solution that is both more robust (in the sense that a stable solution emerges across a wide range of parameter values with no 'tweaking' of the algorithm) and more efficient (in the sense that a rule of given accuracy can be represented with many fewer computations) than standard solution methods.

Date: 2012
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