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Error Bounds for a Numerical Solution for Dynamic Economic Models

Author

Listed:
  • Manuel S. Santos

    (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

  • Jesus Vigo

    (Departamento de Economia, Universidad de Salamanca)

Abstract

In this paper we analyze a discretized version of the dynamic programming algorithm for a parameterized family of infinite-horizon economic models, and derive error bounds for the approximate value and policy functions. If h is the mesh size of the discretization, then the approximation error for the value function is bounded by Mh^2, and the approximation error for the policy function is bounded by $Nh,$ where the constants $M$ and $N$ can be estimated from primitive data of the model.

Suggested Citation

  • Manuel S. Santos & Jesus Vigo, 1995. "Error Bounds for a Numerical Solution for Dynamic Economic Models," Working Papers 9504, Centro de Investigacion Economica, ITAM.
    • Handle: RePEc:cie:wpaper:9504
    as

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