add solver for dynamic linear economies as LQ problem

docs/source/tools.rst

@@ -9,6 +9,7 @@ Tools
    tools/compute_fp
    tools/discrete_rv
    tools/distributions
+   tools/dle
    tools/ecdf
    tools/estspec
    tools/filter

docs/source/tools/dle.rst

@@ -0,0 +1,7 @@
+dle
+===
+
+.. automodule:: quantecon.dle
+    :members:
+    :undoc-members:
+    :show-inheritance:

quantecon/__init__.py

@@ -17,6 +17,7 @@
 #-Objects-#
 from .compute_fp import compute_fixed_point
 from .discrete_rv import DiscreteRV
+from .dle import DLE
 from .ecdf import ECDF
 from .estspec import smooth, periodogram, ar_periodogram
 # from .game_theory import <objects-here> 							#Place Holder if we wish to promote any general objects to the qe namespace.

quantecon/dle.py

@@ -0,0 +1,330 @@
+"""
+Provides a class called DLE to convert and solve dynamic linear economics 
+(as set out in Hansen & Sargent (2013)) as LQ problems.
+"""
+
+import numpy as np
+from .lqcontrol import LQ
+from .matrix_eqn import solve_discrete_lyapunov
+from .rank_nullspace import nullspace
+
+class DLE(object):
+    r"""
+    This class is for analyzing dynamic linear economies, as set out in Hansen & Sargent (2013).
+    The planner's problem is to choose \{c_t, s_t, i_t, h_t, k_t, g_t\}_{t=0}^\infty to maximize
+
+        \max -(1/2) \mathbb{E} \sum_{t=0}^{\infty} \beta^t [(s_t - b_t).(s_t-b_t) + g_t.g_t]
+
+    subject to the linear constraints
+
+        \Phi_c c_t + \Phi_g g_t + \Phi_i i_t = \Gamma k_{t-1} + d_t
+        k_t = \Delta_k k_{t-1} + \Theta_k i_t
+        h_t = \Delta_h h_{t-1} + \Theta_h c_t
+        s_t = \Lambda h_{t-1} + \Pi c_t
+
+    and 
+
+        z_{t+1} = A_{22} z_t + C_2 w_{t+1}
+        b_t = U_b z_t
+        d_t = U_d z_t 
+
+    where h_{-1}, k_{-1}, and z_0 are given as initial conditions.
+
+    Section 5.5 of HS2013 describes how to map these matrices into those of 
+    a LQ problem. 
+
+    HS2013 sort the matrices defining the problem into three groups:
+
+    Information: A_{22}, C_2, U_b , and U_d characterize the motion of information 
+    sets and of taste and technology shocks
+
+    Technology: \Phi_c, \Phi_g, \Phi_i, \Gamma, \Delta_k, and \Theta_k determine the 
+    technology for producing consumption goods
+
+    Preferences: \Delta_h, \Theta_h, \Lambda, and \Pi determine the technology for 
+    producing consumption services from consumer goods. A scalar discount factor \beta 
+    determines the preference ordering over consumption services.
+
+    Parameters
+    ----------
+    Information : tuple
+        Information is a tuple containing the matrices A_{22}, C_2, U_b, and U_d
+    Technology : tuple
+        Technology is a tuple containing the matrices \Phi_c, \Phi_g, \Phi_i, \Gamma, 
+        \Delta_k, and \Theta_k
+    Preferences : tuple
+        Preferences is a tuple containing the matrices \Delta_h, \Theta_h, \Lambda, 
+        \Pi, and the scalar \beta
+
+    """
+
+    def __init__(self, information, technology, preferences):
+
+        # === Unpack the tuples which define information, technology and preferences === #
+        self.a22, self.c2, self.ub, self.ud = information
+        self.phic, self.phig, self.phii, self.gamma, self.deltak, self.thetak = technology
+        self.beta, self.llambda, self.pih, self.deltah, self.thetah = preferences
+
+        # === Computation of the dimension of the structural parameter matrices === #
+        self.nb, self.nh = self.llambda.shape
+        self.nd, self.nc = self.phic.shape
+        self.nz, self.nw = self.c2.shape
+        junk, self.ng = self.phig.shape
+        self.nk, self.ni = self.thetak.shape
+
+        # === Creation of various useful matrices === #
+        uc = np.hstack((np.eye(self.nc), np.zeros((self.nc, self.ng))))
+        ug = np.hstack((np.zeros((self.ng, self.nc)), np.eye(self.ng)))
+        phiin = np.linalg.inv(np.hstack((self.phic, self.phig)))
+        phiinc = uc.dot(phiin)
+        phiing = ug.dot(phiin)
+        b11 = - self.thetah.dot(phiinc).dot(self.phii)
+        a1 = self.thetah.dot(phiinc).dot(self.gamma)
+        a12 = np.vstack((self.thetah.dot(phiinc).dot(
+            self.ud), np.zeros((self.nk, self.nz))))
+
+        # === Creation of the A Matrix for the state transition of the LQ problem === #
+
+        a11 = np.vstack((np.hstack((self.deltah, a1)), np.hstack(
+            (np.zeros((self.nk, self.nh)), self.deltak))))
+        self.A = np.vstack((np.hstack((a11, a12)), np.hstack(
+            (np.zeros((self.nz, self.nk + self.nh)), self.a22))))
+
+        # === Creation of the B Matrix for the state transition of the LQ problem === #
+
+        b1 = np.vstack((b11, self.thetak))
+        self.B = np.vstack((b1, np.zeros((self.nz, self.ni))))
+
+        # === Creation of the C Matrix for the state transition of the LQ problem === #
+
+        self.C = np.vstack((np.zeros((self.nk + self.nh, self.nw)), self.c2))
+
+        # === Define R,W and Q for the payoff function of the LQ problem === #
+
+        self.H = np.hstack((self.llambda, self.pih.dot(uc).dot(phiin).dot(self.gamma), self.pih.dot(
+            uc).dot(phiin).dot(self.ud) - self.ub, -self.pih.dot(uc).dot(phiin).dot(self.phii)))
+        self.G = ug.dot(phiin).dot(
+            np.hstack((np.zeros((self.nd, self.nh)), self.gamma, self.ud, -self.phii)))
+        self.S = (self.G.T.dot(self.G) + self.H.T.dot(self.H)) / 2
+
+        self.nx = self.nh + self.nk + self.nz
+        self.n = self.ni + self.nh + self.nk + self.nz
+
+        self.R = self.S[0:self.nx, 0:self.nx]
+        self.W = self.S[self.nx:self.n, 0:self.nx]
+        self.Q = self.S[self.nx:self.n, self.nx:self.n]
+
+        # === Use quantecon's LQ code to solve our LQ problem === #
+
+        lq = LQ(self.Q, self.R, self.A, self.B,
+                self.C, N=self.W, beta=self.beta)
+
+        self.P, self.F, self.d = lq.stationary_values()
+
+        # === Construct output matrices for our economy using the solution to the LQ problem === #
+
+        self.A0 = self.A - self.B.dot(self.F)
+
+        self.Sh = self.A0[0:self.nh, 0:self.nx]
+        self.Sk = self.A0[self.nh:self.nh + self.nk, 0:self.nx]
+        self.Sk1 = np.hstack((np.zeros((self.nk, self.nh)), np.eye(
+            self.nk), np.zeros((self.nk, self.nz))))
+        self.Si = -self.F
+        self.Sd = np.hstack((np.zeros((self.nd, self.nh + self.nk)), self.ud))
+        self.Sb = np.hstack((np.zeros((self.nb, self.nh + self.nk)), self.ub))
+        self.Sc = uc.dot(phiin).dot(-self.phii.dot(self.Si) +
+                                    self.gamma.dot(self.Sk1) + self.Sd)
+        self.Sg = ug.dot(phiin).dot(-self.phii.dot(self.Si) +
+                                    self.gamma.dot(self.Sk1) + self.Sd)
+        self.Ss = self.llambda.dot(np.hstack((np.eye(self.nh), np.zeros(
+            (self.nh, self.nk + self.nz))))) + self.pih.dot(self.Sc)
+
+        # ===  Calculate eigenvalues of A0 === #
+        self.A110 = self.A0[0:self.nh + self.nk, 0:self.nh + self.nk]
+        self.endo = np.linalg.eigvals(self.A110)
+        self.exo = np.linalg.eigvals(self.a22)
+
+        # === Construct matrices for Lagrange Multipliers === #
+
+        self.Mk = -2 * np.asscalar(self.beta) * (np.hstack((np.zeros((self.nk, self.nh)), np.eye(
+            self.nk), np.zeros((self.nk, self.nz))))).dot(self.P).dot(self.A0)
+        self.Mh = -2 * np.asscalar(self.beta) * (np.hstack((np.eye(self.nh), np.zeros(
+            (self.nh, self.nk)), np.zeros((self.nh, self.nz))))).dot(self.P).dot(self.A0)
+        self.Ms = -(self.Sb - self.Ss)
+        self.Md = -(np.linalg.inv(np.vstack((self.phic.T, self.phig.T))).dot(
+            np.vstack((self.thetah.T.dot(self.Mh) + self.pih.T.dot(self.Ms), -self.Sg))))
+        self.Mc = -(self.thetah.T.dot(self.Mh) + self.pih.T.dot(self.Ms))
+        self.Mi = -(self.thetak.T.dot(self.Mk))
+
+    def compute_steadystate(self, nnc=2):
+        """
+        Computes the non-stochastic steady-state of the economy.
+
+        Parameters
+        ----------
+        nnc : array_like(float)
+            nnc is the location of the constant in the state vector x_t
+
+        """
+        zx = np.eye(self.A0.shape[0])-self.A0
+        self.zz = nullspace(zx)
+        self.zz /= self.zz[nnc]
+        self.css = self.Sc.dot(self.zz)
+        self.sss = self.Ss.dot(self.zz)
+        self.iss = self.Si.dot(self.zz)
+        self.dss = self.Sd.dot(self.zz)
+        self.bss = self.Sb.dot(self.zz)
+        self.kss = self.Sk.dot(self.zz)
+        self.hss = self.Sh.dot(self.zz)
+
+    def compute_sequence(self, x0, ts_length=None, Pay=None):
+        """
+        Simulate quantities and prices for the economy
+
+        Parameters
+        ----------
+        x0 : array_like(float)
+            The initial state
+
+        ts_length : scalar(int)
+            Length of the simulation
+
+        Pay : array_like(float)
+            Vector to price an asset whose payout is Pay*xt
+
+        """
+        lq = LQ(self.Q, self.R, self.A, self.B,
+                self.C, N=self.W, beta=self.beta)
+        xp, up, wp = lq.compute_sequence(x0, ts_length)
+        self.h = self.Sh.dot(xp)
+        self.k = self.Sk.dot(xp)
+        self.i = self.Si.dot(xp)
+        self.b = self.Sb.dot(xp)
+        self.d = self.Sd.dot(xp)
+        self.c = self.Sc.dot(xp)
+        self.g = self.Sg.dot(xp)
+        self.s = self.Ss.dot(xp)
+
+        # === Value of J-period risk-free bonds === #
+        # === See p.145: Equation (7.11.2) === #
+        e1 = np.zeros((1, self.nc))
+        e1[0, 0] = 1
+        self.R1_Price = np.empty((ts_length + 1, 1))
+        self.R2_Price = np.empty((ts_length + 1, 1))
+        self.R5_Price = np.empty((ts_length + 1, 1))
+        for i in range(ts_length + 1):
+            self.R1_Price[i, 0] = self.beta * e1.dot(self.Mc).dot(np.linalg.matrix_power(
+                self.A0, 1)).dot(xp[:, i]) / e1.dot(self.Mc).dot(xp[:, i])
+            self.R2_Price[i, 0] = self.beta**2 * e1.dot(self.Mc).dot(
+                np.linalg.matrix_power(self.A0, 2)).dot(xp[:, i]) / e1.dot(self.Mc).dot(xp[:, i])
+            self.R5_Price[i, 0] = self.beta**5 * e1.dot(self.Mc).dot(
+                np.linalg.matrix_power(self.A0, 5)).dot(xp[:, i]) / e1.dot(self.Mc).dot(xp[:, i])
+
+        # === Gross rates of return on 1-period risk-free bonds === #
+        self.R1_Gross = 1 / self.R1_Price
+
+        # === Net rates of return on J-period risk-free bonds === #
+        # === See p.148: log of gross rate of return, divided by j === #
+        self.R1_Net = np.log(1 / self.R1_Price) / 1
+        self.R2_Net = np.log(1 / self.R2_Price) / 2
+        self.R5_Net = np.log(1 / self.R5_Price) / 5
+
+        # === Value of asset whose payout vector is Pay*xt === #
+        # See p.145: Equation (7.11.1)
+        if isinstance(Pay, np.ndarray) == True:
+            self.Za = Pay.T.dot(self.Mc)
+            self.Q = solve_discrete_lyapunov(
+                self.A0.T * self.beta**0.5, self.Za)
+            self.q = self.beta / (1 - self.beta) * \
+                np.trace(self.C.T.dot(self.Q).dot(self.C))
+            self.Pay_Price = np.empty((ts_length + 1, 1))
+            self.Pay_Gross = np.empty((ts_length + 1, 1))
+            self.Pay_Gross[0, 0] = np.nan
+            for i in range(ts_length + 1):
+                self.Pay_Price[i, 0] = (xp[:, i].T.dot(self.Q).dot(
+                    xp[:, i]) + self.q) / e1.dot(self.Mc).dot(xp[:, i])
+            for i in range(ts_length):
+                self.Pay_Gross[i + 1, 0] = self.Pay_Price[i + 1,
+                                                          0] / (self.Pay_Price[i, 0] - Pay.dot(xp[:, i]))
+        return
+
+    def irf(self, ts_length=100, shock=None):
+        """
+        Create Impulse Response Functions
+
+        Parameters
+        ----------
+
+        ts_length : scalar(int)
+            Number of periods to calculate IRF
+
+        Shock : array_like(float)
+            Vector of shocks to calculate IRF to. Default is first element of w
+
+        """
+
+        if type(shock) != np.ndarray:
+            # Default is to select first element of w
+            shock = np.vstack((np.ones((1, 1)), np.zeros((self.nw - 1, 1))))
+
+        self.c_irf = np.empty((ts_length, self.nc))
+        self.s_irf = np.empty((ts_length, self.nb))
+        self.i_irf = np.empty((ts_length, self.ni))
+        self.k_irf = np.empty((ts_length, self.nk))
+        self.h_irf = np.empty((ts_length, self.nh))
+        self.g_irf = np.empty((ts_length, self.ng))
+        self.d_irf = np.empty((ts_length, self.nd))
+        self.b_irf = np.empty((ts_length, self.nb))
+
+        for i in range(ts_length):
+            self.c_irf[i, :] = self.Sc.dot(
+                np.linalg.matrix_power(self.A0, i)).dot(self.C).dot(shock).T
+            self.s_irf[i, :] = self.Ss.dot(
+                np.linalg.matrix_power(self.A0, i)).dot(self.C).dot(shock).T
+            self.i_irf[i, :] = self.Si.dot(
+                np.linalg.matrix_power(self.A0, i)).dot(self.C).dot(shock).T
+            self.k_irf[i, :] = self.Sk.dot(
+                np.linalg.matrix_power(self.A0, i)).dot(self.C).dot(shock).T
+            self.h_irf[i, :] = self.Sh.dot(
+                np.linalg.matrix_power(self.A0, i)).dot(self.C).dot(shock).T
+            self.g_irf[i, :] = self.Sg.dot(
+                np.linalg.matrix_power(self.A0, i)).dot(self.C).dot(shock).T
+            self.d_irf[i, :] = self.Sd.dot(
+                np.linalg.matrix_power(self.A0, i)).dot(self.C).dot(shock).T
+            self.b_irf[i, :] = self.Sb.dot(
+                np.linalg.matrix_power(self.A0, i)).dot(self.C).dot(shock).T
+
+        return
+
+    def canonical(self):
+        """ 
+        Compute canonical preference representation
+        Uses auxiliary problem of 9.4.2, with the preference shock process reintroduced
+        Calculates pihat, llambdahat and ubhat for the equivalent canonical household technology
+        """
+        Ac1 = np.hstack((self.deltah, np.zeros((self.nh, self.nz))))
+        Ac2 = np.hstack((np.zeros((self.nz, self.nh)), self.a22))
+        Ac = np.vstack((Ac1, Ac2))
+        Bc = np.vstack((self.thetah, np.zeros((self.nz, self.nc))))
+        Cc = np.vstack((np.zeros((self.nh, self.nw)), self.c2))
+        Rc1 = np.hstack((self.llambda.T.dot(self.llambda), -
+                         self.llambda.T.dot(self.ub)))
+        Rc2 = np.hstack((-self.ub.T.dot(self.llambda), self.ub.T.dot(self.ub)))
+        Rc = np.vstack((Rc1, Rc2))
+        Qc = self.pih.T.dot(self.pih)
+        Nc = np.hstack(
+            (self.pih.T.dot(self.llambda), -self.pih.T.dot(self.ub)))
+
+        lq_aux = LQ(Qc, Rc, Ac, Bc, N=Nc, beta=self.beta)
+
+        P1, F1, d1 = lq_aux.stationary_values()
+
+        self.F_b = F1[:, 0:self.nh]
+        self.F_f = F1[:, self.nh:]
+
+        self.pihat = np.linalg.cholesky(self.pih.T.dot(
+            self.pih) + self.beta.dot(self.thetah.T).dot(P1[0:self.nh, 0:self.nh]).dot(self.thetah)).T
+        self.llambdahat = self.pihat.dot(self.F_b)
+        self.ubhat = - self.pihat.dot(self.F_f)
+
+        return