I have a general question regarding dynare and general solution process.
Right now I am solving a model with: 1. productivity shocks with large sigma; 2. several occasionally binding constraints. 3. many choice variables. Currently I know dynare Occbin toolkit, but it is unable to converge under if I increase the shock’s sigma. Note that the shock volatility is estimated from the data and I cannot reduce it.
Then I turn to global solutions, i.e. value function iteration, but as I have many states, it is extremely slow. What I am curious is: 1. is there a possible way that I can use VFI with very coarse grids, then interpolate? I have this general idea but the problem is that
a) the model has occasionally binding constraints, so Value functions would have holes at some grids;
b) should I interpolate during iterations or after obtaining the solution? Is there a general rule?
Any references would be greatly appreciated!
- If there possibly exists another solution that is free from the above concern?