This paper introduces a method for solving numerical dynamic stochastic optimization problems that avoids rootfinding operations. The idea is applicable to many microeconomic and macroeconomic problems, including life cycle, buffer-stock, and stochastic growth problems. Software is provided.

This paper introduces a method for solving numerical dynamic stochastic optimization problems that avoids rootfinding operations. The idea is applicable to many microeconomic and macroeconomic problems, including life cycle, buffer-stock, and stochastic growth problems. Software is provided.

In this paper, which is a continuation of a previously published discrete time paper, we study a class of continuous time stochastic control problems which, in various ways, are time inconsistent in the sense that they do not admit a Bellman optimality principle. We study these problems within a...

We argue that even when macroeconomic variables are constant, underlying microeconomic uncertainty and borrowing constraints generate inflation.We study stochastic economies with fiat money, a central bank, one nondurable commodity, countably many time periods, and a continuum of agents. The...

The focus is upon equilibrium real exchange rates, optimal external debt and their interaction, in a world where both the return on investment and the real rate of interest are stochastic variables. These theoretically based measures are applied empirically to answer the following questions:...

Motivated by the problems of the conventional model in rationalizing market data, we derive the equilibrium interest rate and risk premiums using recursive utility in a continuous-time model. We use the stochastic maximum principle to analyze the model. This method uses forward/backward...

We show that the quotient of Levy processes of jump-diffusion type has a fat-taileddistribution. An application is to price theory in economics, with the result that fat tails ariseendogenously from modeling of price change based on an excess demand analysis resulting in aquotient of arbitrarily...

This paper studies optimal sovereign investment and resource allocation decisions in the presence of asset price discontinuities due to stochastic volatility and event related jump risks. We find that: (i) both volatility jumps and positive price jumps increase investment in commodities while...

I propose and axiomatically characterize a multi-attribute stochastic choice model that simultaneously generalizes the standard model of deterministic choice and the Luce rule. Attributes are cardinal, independent measures of desirability that are endogenously inferred from observed choices, and...

We use stochastic optimal control-dynamic programming (DP) to derive the optimal foreign debt/net worth, consumption/net worth, current account/net worth, and endogenous growth rate in an open economy. Unlike the literature that uses an Intertemporal Budget Constraint (IBC) or the Maximum...