This repository aims to extend EconPDEs.jl to permit jump diffusions in endogenous state variables by applying pseudo-transient continuation to the value function iteration method developed by Li, Wenhao (2020) “Public Liquidity and Financial Crises”. The key problem is that with jump diffusions the Hamilton-Jacobi-Bellman equation becomes an integro-differential equation. Li (2020) handles this problem with tempered fixed-point iteration. The method, however, requires log utility for agents. To extend the method for more general preferences and models, I plan to use pseudo-transient continuation as the proposal method for the next guess of value functions in the tempered fixed-point iteration.

The current plan of development is

  1. Replicate Li (2020) in Julia. (DONE)

    a. Approx. 4 times faster (2s in Julia vs. 8s in MATLAB) on a Macbook Pro.

  2. Implement basic “Brunnermeier-Sannikov” style model with jumps.

  3. Rewrite the solution method to apply pseudo-transient continuation. Test with the Brunnermeier-Sannikov model.

  4. Extend EconPDEs.jl to permit generic problems featuring fixed points.

William Chen
William Chen
Ph.D. Student in Economics

I am a Ph.D. student in Economics at MIT. I am also a former Senior Research Analyst of the DSGE Team at the Federal Reserve Bank of New York. My research interests include macroeconomics, finance, and computational macroeconomics. Within these fields, I am particularly interested in business cycle theory, financial crises, and macro-labor. My pronouns are he/him.