Questions tagged [dynamic-programming]
The dynamic-programming tag has no usage guidance.
68
questions
0
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0answers
18 views
How to determine state variables in Value Functions
I've always been slightly confused as to how to determine what is and isn't a state variable in dynamic programming. The mathematics of DP doesn't seem to offer any clues either in my experience.
...
2
votes
0answers
27 views
More equations than endogenous variables in RBC model
I recently came across my late father's bachelor's thesis, in which a RBC model is described. It appears to be a variant of Hansen's 1985 model with indivisible labor. I wrote the model into Dynare to ...
1
vote
0answers
24 views
How to define a dynamic programming problem in an incomplete information game?
How can I define a problem of dynamic programming, to use the Hamilton-Jacobi-Bellman equation in order to solve the utility maximization problem of the generic agent of a dynamic game with incomplete ...
0
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0answers
28 views
Mechanism Design and game theory with stochastic caclulus
Does anybody know if there is a literature that combines mechanism design or market games with dynamic programming or stochastic calculus in general? I have heard about stochastic differential game ...
2
votes
0answers
35 views
Closed form solution to consumption-saving model in discrete time
Consider the simplest consumption-savings model of the following form:
$$
\max_{\{c_t,a_{t+1}\}_t}\mathbb{E_0}\sum_{t\geq 0} \beta^tu(c_t) \\
a_{t+1} + c_t = (1+r)a_t + y_t \\
y_t \mid y_{t-1} \sim F
$...
4
votes
1answer
66 views
Dynamic programming in infinite horizon model
Using an infinite horizon model, a dynamic programming approach uses a fixed point to solve the model: $V = \Gamma(V)$.
How do I interpret the meaning of $V$? For example, when we decide a investment ...
2
votes
0answers
59 views
Easy introduction to Markov processes and dynamic programming [closed]
I am taking advanced macro course in Fall. Could you please advise me a simple introduction to Markov processes and dynamic programming? I mean easy. Thanks!
3
votes
2answers
147 views
Resources to derive economic forecasts
What publicly available resources are there, with sample code, that can be used to build my own macroeconomic model? A search on Github shows that some people have posted code, but I think we can do ...
3
votes
0answers
28 views
Value function iteration with stochastic productivity's standard deviation
Hello I would like to know how would you discretize the AR(1) process of technology in a standart RBC model when there is stochastic productivity's standard deviation. Namely I have:
Technology $Z_t$ ...
4
votes
0answers
41 views
Value function iteration with habit
I would like to know how I could write a value function when there are habits in preferences. I have the following equations:
$$
u\left(C, t, H_{t}, L_{t}\right)=\frac{\left(C_{t} / H_{t}^{\kappa}\...
2
votes
1answer
82 views
Exercise 4.7 in SLP (dynamic programming)
Exercise 4.7 (b) : Show that under Assumptions 4.10 and 4.11, $T:H(X) \to H(X)$.
$H(X)$ is the set of continuous and homogeneous of degree one functions and $Tf(x) = \sup_{y \in \Gamma(x)} \{F(x,y) + ...
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0answers
53 views
Cost-optimal p2p-trade in a community of households
I’m trying to solve the following problem and I’ve been working on it for a long time already:
I want to optimize electricity-costs in a smart grid. There’s producer and consumer households in the ...
2
votes
1answer
93 views
Proving that the utility is concave
Consider a household which solves the following problem:
$$v(k,r,w)=\underset{c,l\in B{(k,r,ω)}}{\ {max}} \{u(c,l)\}$$
where $u : R_+^2 \rightarrow R$ is a strictly concave, twice continuously ...
2
votes
0answers
65 views
Cake eating problem
Consider an infinitely lived agent born in time zero, endowed with a cake of size $x_0$. The cake is storable (without depreciation) and infinitely divisible. The agent derives contemporary utility ...
0
votes
0answers
38 views
Dynamic programming and Difference equations applications
I'm asked by my teacher to prepare a presentation with economic applications of Dynamic Programing (Bellman Equation) and Difference equations. I'm not sure what this things are used for in economics ...
3
votes
1answer
294 views
A Cake Eating Problem in Continuous Time: Hamiltonian or HJB?
Your standard continuous time cake eating problem is defined as follows:
$$\max_{c(t)}\int_0^\infty e^{-rt} \ln (c(t)) dt$$
subject to
$$f(k(t))=k(t)$$
$$\dot{k}(t)=-c(t)$$
Approaching this problem by ...
2
votes
1answer
271 views
The Principle of Optimality and the Bellman Equation
Given (1) and (2), is it possible to show the existence of a Bellman equation (3), using Bellman's Principle of Optimality?
$$\ max \Sigma\beta^s U(C_t)$$
Subject to the following resource ...
3
votes
0answers
132 views
What are the boundary value conditions for generic HJBs in economics?
Consider a routine continuous time optimization problem:
$
V(t,a_{t}) :=
\max \int_{\tau=t}^{\tau = T}
e^{-\rho (\tau -t)} u(c_{\tau})d\tau
$ $\text{ s.t. }$
$\dot{a}_{t} = y + ra_{t} - c_{t}$,
$a_{...
2
votes
2answers
262 views
What is state space representation for DSGE modeling
I'm beginning with DSGE modeling, and a mathematical representation (perhaps trivial for most of the people that are more with this topic) is the space-state state representation of a dynamical model, ...
5
votes
0answers
76 views
Optimization in discrete time
I have made optimizations in continuous time that belong to the control theory, for example one case:
$\max(\min)V[u(t)]=\int_0^Tf(t,x(t),u(t))dt$
constraint to: $\dot x=g(t,x(t),u(t))$
Where:
$x(t)$: ...
2
votes
1answer
55 views
Can anyone help me understand the Motrtensen-Pissarides model?
I am seeking help with the Mortensen-Pissarides model in discrete time? Basically, I was given the following in class example (which we didn’t complete do to time constraints associated with the end ...
3
votes
2answers
186 views
Solving a HJB with a probability to transit to a new state
I am trying to solve the problem of a firm facing the possibility of a future tax, in continuous time.
The firm maximizes $V(k)=\int_{t=0}^{\infty}e^{-rt} \pi_t dt$ with $\pi_t=f(k_t)-i_t$ and $\dot{k}...
3
votes
1answer
174 views
More than one Bellman Equation
I'm attending to my first dynamic optimization course, and what I don't fully graps yet is that sometimes we have to use more than one bellman equation.
How do you realize that? I mean how do you know ...
1
vote
0answers
41 views
Coase conjecture and Stokey model
The durable goods monopolist can charge different prices by every periods. Critical type consumers are indifferent between buying today and buying tomorrow. So I construct a Bellman equation like ...
2
votes
1answer
110 views
What is the result of the Bellman Equation
I'm just starting with dynamic optimization and although I understant the proof's of the theorem I'm not able to fully understand whether the bellman equation is a function , a function valuated at ...
2
votes
2answers
77 views
Why do game theorists use a discounted payoff of this form?
Excuse the click-baity title. I notice the discounted payoff in the game theory literature usually takes the form
$$\sum_{t=1}^\infty\lambda(1-\lambda)^{t-1}R_t$$
This differs from the discounted ...
2
votes
0answers
82 views
Linearization of the dynamic system (I did it, but I have a mistake that I cannot catch. Help me please)
I have the following dynamic system in discrete time
For p is price, d is demand and s is supply.
$$p_{t+1}-p_t= a(d_t-s_t)$$
$$s_{t+1}-s_t=bp_ts_t-ws_t$$
$$d_t= k-gp_t$$
I have to linearize this ...
2
votes
1answer
414 views
The Cake Eating Problem with Depreciation (Modelling difficulties)
How does one go about modelling the cake eating problem with depreciation? (i.e The cake goes bad over time)
The problem I have is the following.
Lets define a cake eating problem sequentially as:
...
2
votes
2answers
293 views
Dynamic programming, optimal consumption-savings (finite horizon) problem
Let $w_t$ denote a consumer's wealth at time $t$ and $c_t$,
the amount she chooses to consume, so her savings exiting this time period are $w_t-c_t$. Given this savings decision, her savings $w_{t+1}$ ...
1
vote
1answer
158 views
A profit maximization problem (whole problem has been solved, I just have question about interpretation)
I would like to discuss with you about the following production function.
$$y=f(t_m, t_l)=\rho t_m^m(n+t_l)$$
where $0<m<1 $ and $n>0$ are fixed parameters.
$t_m$ is manager time.
$t_l$ ...
0
votes
1answer
114 views
Sequential Price Competition for Perfect Complements
There are two goods, $1$ and $2$ produced by two firms at zero marginal costs. The goods are perfect complements. The demand for each goods is: $Q_1=Q_2=a-(p_1+p_2)$. The prices are set sequentially, ...
0
votes
3answers
179 views
What is unknown in Bellman Equation?
\begin{align}
V(W)=\max\limits_{W'\in[0,W]}\qquad& u(W-W')+\beta V(W')\qquad\forall W
\end{align}
$\textbf{My Question}$: Why is the unknown in the Bellman equation $V(W)$ itself? Isn't the ...
2
votes
0answers
71 views
Why is there a Lagrangian Multiplier in the Dynamic Programming Problem of the RBC model?
Suppose that the household faces the following problem:
$\underset{ c_t , k_{t+1}, n_t } \max \mathbb{E}_0 \sum_{t=0}^{\infty} \beta^t \ln c_t + \ln (1 - n_t)$
subjected to
$ k_{t+1} = A_t k_t ^{\...
1
vote
2answers
369 views
In Blackwell's condition for T to be a contraction mapping, we require that satisfies discounting. What is the intuition of discounting?
The discounting condition is as follow:
There exists some $\beta \in (0, 1)$ such that $[T(f + a)](x) ≤ (T f)(x) + βa$, for all $f ∈ B(X), a ≥ 0, x ∈ X$.
While the monotonicity condition makes sense,...
1
vote
0answers
244 views
Natural borrowing/debt limit and other borrowing constraints
When confronted with the simple household consumption maximization problem under uncertainty (and with Arrow security sequential trading)
$$\max_{\{c_t(s^t),a_{t+1}(s^t,s_{t+1})\}_{t=0}^{\infty}}\...
1
vote
0answers
298 views
Explanation of Dynamic Programming "Guess and Verify" Technique
According to my textbook, the analytical technique for solving a Bellman's Equation is as follows:
Guess a form for $V_0(x)$
Solve the maximization problem with respect to the control and obtain a ...
0
votes
1answer
88 views
Capital accumulation
I have following dynamic optimization problem
$$V(k_0)=\max \sum_{t=0}^{\infty} b^t((1-a)ln c_t+a ln(l_t))$$
Subject to $l_t+e_t=h$ and $y=Ak_t^pe_t^{1-p}$ and $k_{t+1}=i_t+(1-x)k_t$
Where c is ...
3
votes
0answers
693 views
Market clearing condition with Walras law
I have a diamond overlapping model
The question is as follows
Let us consider an infinitely lived production economy populated at time t by $N_t$ identical and perfectly competitive adult ...
6
votes
1answer
203 views
How do I begin to approach this dynamic discrete choice model?
I'm working through an old problem set (that sadly I don't have solutions for) and I got stuck. It is a dynamic model of entrepreneurship and invention. I'm looking for guidance on this model as well ...
5
votes
0answers
207 views
Solution to Dynamic Programming (Bellman Equation) Problem
Could someone please provide pointers on how to solve the below? If any theoretical approximations are possible, that would be very helpful. If numerical solutions are the right approach, could you ...
1
vote
0answers
108 views
Stochastic Dynamic Programming: Deriving the Steady-State for a Lottery
I am working through the basic examples of the stochastic RBC models in the book by McCandless (2008): The ABCs of RBCs, pp. 71 - 75
A Standard Stochastic Dynamic Programming Problem
Here is a ...
1
vote
1answer
104 views
A reference for most used utility functions in macroeconomic problems of intertemporal optimization
I'm looking for a reference with the most used utility functions in macroeconomic problems of intertemporal optimization. The reference should preferably include a list of properties of those ...
4
votes
1answer
34 views
Question regarding Carlstrom and Feurst (1997)
I am reading through Carlstrom and Feurst's 1997 paper Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis and had a question, although it could apply to ...
4
votes
2answers
168 views
Optimisation using value function
I have the following optimisation problem:
max $E_{0}\sum_{t=0}^{\infty}[log(c_{t}) + log(m_{t})]$ subject to $y + \frac{M_{t-1}}{p_{t}} + R_{t-1}\frac{B_{t-1}}{p_{t}} = c_{t} + m_{t}+b_{t}+\tau_{t}$
...
1
vote
1answer
173 views
Dynamic programming with housing consumption and labor
I try to solve the following maximization problem of a representative household with dynamic programming. However, my last result is not similar to the solution. Could any one help me?
$$\max\...
3
votes
1answer
735 views
Bellman equation for this dynamic programming problem
For the following problem
\begin{equation}\max_{(\tilde{c}_t,\tilde{a}_{t+1+s})}\sum_{s=0}^{\infty}\beta ^su(\tilde{c}_{t+s})\end{equation}
s.t. the following restrictions
$\begin{equation}...
4
votes
1answer
2k views
Solution to the Bellman equation is a fixed point
I have recently started studying dynamic optimization. I cannot quite wrap my head around the fact that the value function of the Bellman equation is a fixed point of a contraction mapping.
As far my ...
1
vote
1answer
149 views
How to deal with Prescott's formulation of time to build in his original RBC model?
So I was replicating the results obtained in section 4 of Prescott's original paper, which derives optimality conditions in steady state without shock. I hope to solve the social planner's ...
1
vote
0answers
146 views
How to solve a variation of Merton's optimal portfolio problem?
Does anyone know how to solve the following problem?
I have tried to solve this but I'm lost since I have never dealt with a Stochastic Dynamic Programming problem with many variables.
$max_{c_{t},\...
1
vote
0answers
80 views
Hamilton-Jacobi-Bellman with heterogeneous discount rates
Let $i=1,2$ denote the players, $x$ the state and $u_i$ the control of player $i$. The state equation reads $\dot x = f(x,u_1,u_2)$ and the objective function is given by $F_i(x,u_1,u_2)$. Now I'd ...
