How to solve dynamic stochastic models computing expectations just once

Abstract

We introduce a technique called "precomputation of integrals" thatmakes it possible to compute conditional expectations in dynamicstochastic models in the initial stage of the solution procedure.This technique can be applied to any set of equations that containsconditional expectations, in particular, to the Bellman and Eulerequations. After the integrals are precomputed, we can solve stochasticmodels as if they were deterministic. We illustrate the benefitsof precomputation of integrals using one- and multi-agent numericalexamples.