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Computation of solutions to dynamic models with occasionally binding constraints.

Holden, T (2016) Computation of solutions to dynamic models with occasionally binding constraints. [Working Paper] (Submitted)

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Abstract

We construct the first algorithm for the perfect foresight solution of otherwise linear models with occasionally binding constraints, with fixed terminal conditions, that is guaranteed to return a solution in finite time, if one exists. We also provide a proof of the inescapability of the “curse of dimensionality” for this problem when nothing is known a priori about the model. We go on to extend our algorithm to deal with stochastic simulation, other non-linearities, and future uncertainty. We show that the resulting algorithm produces fast and accurate simulations of a range of models with occasionally binding constraints.

Item Type: Working Paper
Authors :
AuthorsEmailORCID
Holden, TUNSPECIFIEDUNSPECIFIED
Date : 4 April 2016
Related URLs :
Depositing User : Symplectic Elements
Date Deposited : 28 Mar 2017 15:30
Last Modified : 28 Mar 2017 15:30
URI: http://epubs.surrey.ac.uk/id/eprint/810345

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