On the Recursive Saddle Point Method
Copyright policy )On the Recursive Saddle Point Method
In this paper a simple dynamic optimization problem is solved with the help of the recursive saddle point method developed by Marcet and Marimon (1999). According to Marcet and Marimon, their technique should yield a full characterization of the set of solutions for this problem. We show though, that while their method allows us to calculate the true value of the optimization program, not all solutions with it admits are correct. Indeed, some of the policies which it generates as solutions to our problem, are either suboptimal or do not even satisfy feasibility. We identify the reasons underlying this failure and discuss its implications for the numerous existing applications.
- University of Cologne Germany
- IFS AB Sweden
- Università Luigi Bocconi Italy
- Economic Policy Institute United States
dynamic programming, recursive saddle point, Macroeconomic theory (monetary models, models of taxation), RECURSIVE SADDLE POINT, RECURSIVE CONTRACTS, DYNAMIC PROGRAMMING, Dynamic programming, Resource and cost allocation (including fair division, apportionment, etc.), recursive contracts
dynamic programming, recursive saddle point, Macroeconomic theory (monetary models, models of taxation), RECURSIVE SADDLE POINT, RECURSIVE CONTRACTS, DYNAMIC PROGRAMMING, Dynamic programming, Resource and cost allocation (including fair division, apportionment, etc.), recursive contracts
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