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A geometric programming approach to dynamic economic models

Author

Listed:
  • Inna Tsener

    (Universitat de les Illes Balears)

Abstract

Geometric programming (GP) has several attractive features: it is tractable in large-scale problems, requires no initial guess or tuning of solver parameters, guarantees the convergence to a global optimum and can deal with kinks. In this note, I argue that GP is a potentially promising tool in economics. First, I show that a stylized finite-horizon growth model can be mapped into a GP format by using simple transformations. Second, I show that GP methods produce accurate and reliable solutions including the case of occasionally binding constraints which cannot be easily treated with conventional solvers. Examples of MATLAB codes are provided.

Suggested Citation

  • Inna Tsener, 2020. "A geometric programming approach to dynamic economic models," Economics Bulletin, AccessEcon, vol. 40(2), pages 1068-1074.
    • Handle: RePEc:ebl:ecbull:eb-19-00056
    as

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    References listed on IDEAS

    as
    1. Fair, Ray C & Taylor, John B, 1983. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 51(4), pages 1169-1185, July.
    2. Lilia Maliar & Serguei Maliar & John B. Taylor & Inna Tsener, 2020. "A tractable framework for analyzing a class of nonstationary Markov models," Quantitative Economics, Econometric Society, vol. 11(4), pages 1289-1323, November.
    3. Yongyang Cai & Kenneth Judd & Jevgenijs Steinbuks, 2017. "A nonlinear certainty equivalent approximation method for dynamic stochastic problems," Quantitative Economics, Econometric Society, vol. 8(1), pages 117-147, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    dynamic optimization; geometric programming; finite horizon; occasionally binding constraints; condensation;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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