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Discrete-Time Finite Horizon Appromixation of Infinite Horizon Optimization Problems with Steady-State Invariance

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  • Mercenier, Jean
  • Michel, Philippe
Abstract
The computation of large-scale nonlinear intertemporal optimization problems requires time aggregation. A procedure generally adopted is shown to introduce a dependency of the solution steady state to a specific choice of sequence of time intervals. The authors establish necessary and sufficient conditions to avoid this dependency. The result is a considerable improvement in the numerical accuracy of the time-aggregated approximation. The conditions apply to a broad class of models and prove useful in large-scale applied general-equilibrium modeling. This conclusion is highlighted by a comparison with a spectral-projection method using optimal orthogonal collocation as in K. L. Judd (1992). Copyright 1994 by The Econometric Society.

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  • Mercenier, Jean & Michel, Philippe, 1994. "Discrete-Time Finite Horizon Appromixation of Infinite Horizon Optimization Problems with Steady-State Invariance," Econometrica, Econometric Society, vol. 62(3), pages 635-656, May.
    • Handle: RePEc:ecm:emetrp:v:62:y:1994:i:3:p:635-56
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