How to Solve Dynamic Stochastic Models Computing Expectations Just Once

We introduce a technique called "precomputation of integrals" that makes it possible to compute conditional expectations in dynamic stochastic models in the initial stage of the solution procedure. This technique can be applied to any set of equations that contains conditional expectations, in particular, to the Bellman and Euler equations. After the integrals are precomputed, we can solve stochastic models as if they were deterministic. We illustrate the benefits of precomputation of integrals using oneand multi-agent numerical examples. Kenneth L. Judd Hoover Institution Stanford University Stanford, CA 94305-6010 and NBER [email protected] Lilia Maliar Office T-24 Hoover Institution Stanford University CA 94305-6010, USA [email protected] Serguei Maliar Office T-24 Hoover Institution Stanford University CA 94305-6010, USA [email protected]