AØKK08207U  Dynamic Programming - Theory, Computation, and Empirical Applications

Volume 2018/2019
Education

MSc programme in Economics – elective course

 

The PhD Programme in Economics at the Department of Economics - elective course with resarch module (PhD students must contact the study administration and the lecturer in order to write the research assignment)

Content

.The overall purpose of the course is to provide a fundamental understanding of dynamic programming (DP) models and their empirical application. The DP framework has been extensively used in economic modeling because it is sufficiently rich to model almost any problem involving sequential decision making over time and under uncertainty. Prominent examples are saving/consumption decisions, retirement behavior, investment, labor supply/demand, housing decisions. The course will first introduce participants to theoretical concepts, and then focus on empirical applications covering both discrete and continuous decision problems

Learning Outcome

After completing the course, the student should be able to:

  • Acquire knowledge, skills and competencies related to stochastic dynamic programming and the involved computational hurdles (curse of dimensionality, high dimensional integration, multiplicity of solutions, etc.)

 

Knowledge:

  • Acquire knowledge about solution methods (backward recursion, value function iterations, policy iterations, endogenous grid method) for dynamic structural models of sequential decision making under uncertainty of both finite and infinite.
  • Acquire knowledge about solving for unique and multiple equilibria in general equilibrium models and simple dynamic games.
  • Acquire knowledge about estimation methods (full solution methods: Mathematical Programming with Equilibrium Constraints (MPEC) and Nested Fixed Point Algorithm (maximum likelihood, minimum distance, indirect inference, GMM and simulation versions of these); Non-full solution methods: CPP-estimator, Nested Pseudo likelihood (policy iteration estimators); GMM using Euler equations).

  • Acquire knowledge about numerical techniques to evaluate integrals (quadrature methods and  Monte Carlo integration) involved in evaluating expectations future states of the world and to integrate unobservable out of the sample criterion used in estimation (e.g. the likelihood function).

  • Acquire knowledge about the numerical approximation and interpolation techniques required to approximate value functions over continuous state variables (splines, orthogonal polynomials, neural net).
  • Acquire knowledge about a variety of dynamic structural models
  • Acquire knowledge about how evaluate policy initiatives by means of counter factual simulations

 

Skills:

Skills obtained through exercise classes

  • Students will obtain (programming) skills though hands on experiences with solving and/or estimating relatively simple models (cake eating, stochastic growth, consumption/savings, investment, labor demand/supply).

Skills obtained through Term paper

  • The purpose of the term paper is to make students combine many of the simplified building blocks we covered in the computer exercises. By combining these building blocks, students should be able to solve and estimate more sophisticated model. In particular the students should
  • Solve and estimate dynamic games or single agent models and test hypotheses using solution and estimation methods discussed in the course. Ideally students should be able to replicate the results from an already published paper and thereby get hands on experience with the involved techniques.
  • Investigate the consequences policy proposals by means of counterfactual simulations program the estimators applied in the paper using MATLAB (or GAUSS, FOTRAN and C)
  • Present the analysis in a short and focused term paper.

 

Competencies:

  • Have obtained the competencies in dynamic programming theory and practice and thereby be able to understand papers and undertake empirical analysis on a (simple) dynamic structural model and to present the analysis in a short and focused paper.

 

The acquired competencies in dynamic programming theory and practice provide a strong background that enable students to do empirical analyses at a high level suitable for a Master or even a PhD thesis.

  • Jérome Adda and Russell Cooper: “Dynamic Economics: Quantitative Methods and Applications” MIT Press 2003, ISBN: 978-0-262-01201-0
  • Kenneth Judd: “Numerical Methods in Economics” MIT Press 1998, ISBN: 978-0-262-10071-7
  • 15-20 papers: Ranging from classic seminal contributions to recent state of the art work from the research frontier.

     

It is strongly recommended that Macro III, Micro III and Advanced Microeconometrics have been followed prior taking the course, where the latter is essential. Knowledge about estimation techniques and MATLAB Programming is not a requirement as this course provides the necessary computational skills although prior experience with Matlab is strongly recommended. The courses Econometrics I and II from the Bachelor of Economics must have been passed.
The lectures focus on theory whereas the class provides hands on knowledge of solution and estimation of the models. Ideally, the whole process of estimating a dynamic structural model empirically is learned by writing a term paper that has to be handed in at the end of the semester.
Schedule:
2x2 hours lectures a week from week 6 to 18 (except holidays).
2 hours of exercise classes from week 6/7 to 18 (except holidays).

The overall schema for the Master courses can be seen at KUnet:
MSc in Economics => "courses and teaching" => "Planning and overview" => "Your timetable"
KA i Økonomi => "Kurser og undervisning" => "Planlægning og overblik" => "Dit skema"

Timetable and venue:
To see the time and location of lectures and exercise classes please press the link/links under "Se skema" (See schedule) at the right side of this page (F means Spring). The lectures is shown in each link.

You can find the similar information in English at
https:/​/​skema.ku.dk/​ku1819/​uk/​module.htm
-Select Department: “2200-Økonomisk Institut” (and wait for respond)
-Select Module:: “2200-F19; [Name of course]”
-Select Report Type: “List – Weekdays”
-Select Period: “Forår/Spring – Week 5-30”
Press: “ View Timetable”

Please be aware regarding exercise classes:
- The schedule of the exercise classe is only a pre-planned schedule and can be changed until just before the teaching begins without the participants accept. If this happens it will be informed at the intranet or can be seen in the app myUCPH and at the above link.
- The student is not allowed to participate in an exercise class not registered, because the room has only seats for the amount of registered student.
- That the study administration allocates the students to the exercise classes according to the principles stated in the KUnet.
Credit
7,5 ECTS
Type of assessment
Oral examination, 20 min under invigilation
Written assignment, 4 weeks
The exam is an individual oral exam, without preparation, defending the project paper. The project assignment can be written individually or in groups up to 3 students. The plagiarism rules must be complied and please be aware of the rules for co-writing assignments.
The paper and the oral defence must be in English.
____
Exam registration requirements

None

____

Aid
Only certain aids allowed

All aids can be used to the project assignment.

The student can only bring the project assignment in to the oral examination.

____

 

 

Marking scale
7-point grading scale
Censorship form
No external censorship
The exam can be selected for external assessment.
____
Exam period

Exam information:

The project description must be handed in no later than:

10 April 2019 at 10 AM in Absalon

 

The project must be handed in no later than:

24 May 2019 at 10 AM in Digital Exam

 

Oral defence: Week 25 or 26, June 2019. Exact date and time will be decided by the lecturer and the Exam Office.

 

Note: In special cases, the dates may be changed, which will be informed.

 

Further information about the exam will be available in Digital Exam from the middle of the semester.

Information about examination, rules, exam Schedule etc.: Master(UK) and Master(DK).

_

Re-exam

Reexam information:

Oral exam in week 35 or 36 (August 2019) with the same non-passed project assignment and examination in the full syllabus.

 

Exact date and time will be desided by the lecturer and the Exam Office.

 

 

More information is available at  Master (UK)and Master (DK).  

Criteria for exam assesment

Students are assessed on the extent to which they master the learning outcome for the course.

To receive the top grade, the student must with no or only a few minor weaknesses be able to demonstrate an excellent performance displaying a high level of command of all aspects of the relevant material and can make use of the knowledge, skills and competencies listed in the learning outcomes.

  • Category
  • Hours
  • Lectures
  • 42
  • Class Instruction
  • 24
  • Preparation
  • 140
  • Exam
  • 0,3
  • Total
  • 206,3