Quantitative Economics

Journal Of The Econometric Society

Edited by: Stéphane Bonhomme • Print ISSN: 1759-7323 • Online ISSN: 1759-7331

Quantitative Economics: May, 2023, Volume 14, Issue 2

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

https://doi.org/10.3982/QE1835
p. 651-687

Yongyang Cai, Kenneth L. Judd

We introduce a novel simulated certainty equivalent approximation (SCEQ) method for solving dynamic stochastic problems. Our examples show that SCEQ can quickly 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. With the SCEQ method, a desktop computer will suffice for large problems, but it can also use parallel tools efficiently. The SCEQ method is simple, stable, and can utilize any solver, making it suitable for solving complex economic problems that cannot be solved by other algorithms.


Full Content: Print

Supplemental Material

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

Yongyang Cai and Kenneth L. Judd

This online appendix contains material not found within the manuscript.

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

Yongyang Cai and Kenneth L. Judd

This zip file contains the replication files for the manuscript.