RBC_R_Compiler.R

# Reported times are from function VFI (script) and VFI_comp (compiled)
VFI <-function(){
  
  ## 0. Housekeeping

  rm(list=ls())
  ptm <- proc.time()

  ##  1. Calibration

  aalpha = 1/3;     # Elasticity of output w.r.t. capital
  bbeta  = 0.95;    # Discount factor

  # Productivity values
  vProductivity <- c(0.9792, 0.9896, 1.0000, 1.0106, 1.0212);

  # Transition matrix
  mTransition <- c(0.9727, 0.0273, 0.0000, 0.0000, 0.0000,
                   0.0041, 0.9806, 0.0153, 0.0000, 0.0000,
                   0.0000, 0.0082, 0.9837, 0.0082, 0.0000,
                   0.0000, 0.0000, 0.0153, 0.9806, 0.0041,
                   0.0000, 0.0000, 0.0000, 0.0273, 0.9727);

  mTransition <- matrix(mTransition,nrow=5,ncol=5);
  mTransition <- t(mTransition)

  ## 2. Steady State

  capitalSteadyState = (aalpha*bbeta)^(1/(1-aalpha));
  outputSteadyState = capitalSteadyState^aalpha;
  consumptionSteadyState = outputSteadyState-capitalSteadyState;

  cat(" Output = ", outputSteadyState,", Capital = ",capitalSteadyState, ", Consumption = ", consumptionSteadyState,"\n") 
  cat(" \n")

  # We generate the grid of capital
  vGridCapital <- seq(0.5*capitalSteadyState, 1.5*capitalSteadyState, by = 0.00001);

  nGridCapital <- length(vGridCapital);
  nGridProductivity <- length(vProductivity);

  # 3. Required matrices and vectors

  mOutput           <- matrix(0,nGridCapital,nGridProductivity);
  mValueFunction    <- matrix(0,nGridCapital,nGridProductivity);
  mValueFunctionNew <- matrix(0,nGridCapital,nGridProductivity);
  mPolicyFunction   <- matrix(0,nGridCapital,nGridProductivity);
  expectedValueFunction <- matrix(0,nGridCapital,nGridProductivity);

  ## 4. We pre-build output for each point in the grid

  mOutput = as.matrix(vGridCapital^aalpha)%*%t(as.matrix(vProductivity));

  ## 5. Main iteration
  
  maxDifference <- 10;
  tolerance <- 0.0000001;
  iteration <- 0;

  while (maxDifference>tolerance){  
    
    expectedValueFunction = mValueFunction %*% t(mTransition);
    
    for (nProductivity in 1:nGridProductivity){
      
      # We start from previous choice (monotonicity of policy function)
      gridCapitalNextPeriod <- 1;
      
      for (nCapital in 1:nGridCapital){
        
        valueHighSoFar <- -100000;
        capitalChoice  <- vGridCapital[1];
        
        for (nCapitalNextPeriod in gridCapitalNextPeriod:nGridCapital){
          
          consumption <- mOutput[nCapital,nProductivity]-vGridCapital[nCapitalNextPeriod];
          valueProvisional <- (1-bbeta)*log(consumption)+bbeta*expectedValueFunction[nCapitalNextPeriod,nProductivity];
          
          if (valueProvisional>valueHighSoFar){
            valueHighSoFar <- valueProvisional;
            capitalChoice <- vGridCapital[nCapitalNextPeriod];
            gridCapitalNextPeriod <- nCapitalNextPeriod;}
          else{
            break; # We break when we have achieved the max
          }    
          
        }
        
        mValueFunctionNew[nCapital,nProductivity] <- valueHighSoFar;
        mPolicyFunction[nCapital,nProductivity] <- capitalChoice;
      }
      
    }
    
    maxDifference <- max(abs(mValueFunctionNew-mValueFunction));
    mValueFunction <- mValueFunctionNew;
    
    iteration = iteration+1;
    if ((iteration %% 10)==0 | iteration ==1){
      cat("  Iteration = ", iteration," Sup Diff = ", maxDifference,"\n"); 
    }
    
  }
  
  cat("  Iteration = ", iteration," Sup Diff = ", maxDifference,"\n"); 
  cat(" \n")
  
  cat(" My chek = ", mPolicyFunction[1000,3],"\n"); 
  cat(" \n")
  
  proc.time() - ptm
  
}

require("compiler")

VFI_comp <- cmpfun(VFI)