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Recursive Models of Dynamic Linear Economies$
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Lars Peter Hansen and Thomas J. Sargent

Print publication date: 2013

Print ISBN-13: 9780691042770

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691042770.001.0001

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Efficient Computations

Efficient Computations

Chapter:
(p.32) (p.33) Chapter 3 Efficient Computations
Source:
Recursive Models of Dynamic Linear Economies
Author(s):

Lars Peter Hansen

Thomas J. Sargent

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691042770.003.0003

This chapter describes fast algorithms for computing the value function and optimal decision rule for the type of social planning problem to be described in Chapter 5. The chapter is organized as follows. First, it displays a transformation that removes both discounting and cross-products between states and controls. It then describes invariant subspace methods for solving an optimal linear regulator problem. Next, it describes a closely related method called the doubling algorithm that effectively skips steps in iterating on the Bellman equation. The calculations can be further accelerated by partitioning the state vector to take advantage of patterns of zeros in various matrices that define the problem. This is followed by discussions of fast methods for computing equilibria for periodic economies; the rapid solution of a periodic optimal linear regulator problem; and how the calculations can be adapted to handle Hansen and Sargent's (1995) recursive formulation of Jacobson's and Whittle's risk-sensitive preferences.

Keywords:   fast algorithms, value function, optimal decision rule, social planning, doubling algorithm, periodic economies, linear regulator problem, invariant subspace methods

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