Dynamic stochastic optimisation using endogenous gridpoints for consumption in Lithuania

In the paper, we consider a representative agent problem with shocks to the aggregate productivity. A consumer chooses a stochastic consumption plan to maximise the expected value of his time-additive nonlinear utility function subject to constraints. We apply the dynamic programming for this multi-period problem using the Bellman equation. Beforehand we estimate the structural parameters of the given problem using the enumeration method for Lithuanian consumption data. We employ the method of endogenous gridpoints to approximate consumption function. Given annual 4 percent steady state interest rate the discount factor is equal to 0.99 and the values of relative risk aversion can be selected between 1.5 and 2.0. Using estimated versus calibrated coefficients we show that the consumption might be overestimated in Lithuanian DSGE model.