Computing equilibria in dynamic models with occasionally binding constraints |
| |
Affiliation: | 1. Boston College, Department of Economics, United States;2. European Central Bank, Directorate General Economics, Germany;3. European Central Bank, Directorate General Monetary Policy, Germany |
| |
Abstract: | We propose a method to compute equilibria in dynamic models with several continuous state variables and occasionally binding constraints. These constraints induce non-differentiabilities in policy functions. We develop an interpolation technique that addresses this problem directly: It locates the non-differentiabilities and adds interpolation nodes there. To handle this flexible grid, it uses Delaunay interpolation, a simplicial interpolation technique. Hence, we call this method Adaptive Simplicial Interpolation (ASI). We embed ASI into a time iteration algorithm to compute recursive equilibria in an infinite horizon endowment economy where heterogeneous agents trade in a bond and a stock subject to various trading constraints. We show that this method computes equilibria accurately and outperforms other grid schemes by far. |
| |
Keywords: | Adaptive grid Delaunay interpolation Non-differentiabilities Occasionally binding constraints Simplicial interpolation |
本文献已被 ScienceDirect 等数据库收录! |
|