Teaching | Fedor Iskhakov

Australian National University

ZICE (2014,2015)

Zurich Initiative for Computational Economics
Zurich Center for Computational Financial Economics

Solving and Estimating Discrete-Continuous Choice Models Using the Endogenous Gridpoint Method

EGDST software
Implements EGM with discrete choices (D) and additional state variables (ST) without taste shocks using the combination of Matlab and C. Matlab code of the examples used in the lecture

##### Solution to a stochastic lifecycle model of consumption and savings (Deaton) by EGM in 12 Matlab lines

[quadp quadw]=quadpoints(EXPN,0,1);
quadstnorm=norminv(quadp,0,1);
sgrid=linspace(0,MMAX,NM); 
policy{TBAR}.w=[0 MMAX];
policy{TBAR}.c=[0 MMAX];
for it=TBAR-1:-1:1
w1=Y+exp(quadstnorm*SIGMA)*(1+R)*sgrid;
c1=interp1(policy{it+1}.w,policy{it+1}.c,w1,'linear','extrap');
rhs=quadw'*(1./c1);
policy{it}.c=[0 1./(DF*(1+R)*rhs)];
policy{it}.w=[0 sgrid+policy{it}.c(2:end)];
end