Summary
This note presents some results concerning high-order differentiability of the policy function. It is shown that simple examples of cubic return functions may yield optimal policies which under standard conditions are not differentiable to high order. The loss of differentiability, however, is not robust to small perturbations of the model. For instance, monotone policy functions are almost always high-order differentiable.
Similar content being viewed by others
References
Araujo, A.: The once but not twice differentiability of the policy function. Econometrica59, 1383–1393 (1991)
Araujo, A., Scheinkman, J. A.: Smoothness, comparative dynamics, and the turnpike property. Econometrica45, 601–620 (1977)
Benveniste, L. M., Scheinkman, J. A.: On the differentiability of the value function in dynamic models of economics. Econometrica47, 727–732 (1979)
Boldrin, M., Woodford, M.: Equilibrium models displaying endogeneous cycles and chaos: a survey. J. Mon. Econom.205, 189–222 (1990)
Bowen, R.: Equilibrium states and the ergodic theory of Anosov diffeomorphisms. Lect. Notes Math., vol 420, Berlin, Heidelberg, New York: Springer 1975
Hirsch, M., Pugh, C. C., Shub, R.: Invariant manifolds. Lect. Notes Math., vol. 583. Berlin, Heidelberg, New York: Springer 1977
Mañe, R.: Persistent manifolds are normally hyperbolic. Bull. Amer. Math. Soc.80, 90–91 (1975)
Santos, M. S.: Smoothness of the policy function in discrete-time economic models. Econometrica59, 1365–1382 (1991)
Santos, M. S., Vila, J. L.: Smoothness of the policy function in continuous-time economic models: the one-dimensional case. J. Econ. Dynam. Control15, 741–753 (1988)
Sternberg, S.: On the structure of local homeomorphisms of Euclideann-space. Amer. J. Math.59, 623–631 (1959)
Stokey, N. L., Lucas, R. E., Prescott, E. C.: Recursive methods in economic dynamics. Cambridge, Mass.: Harvard University Press 1989
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Santos, M.S. On high-order differentiability of the policy function. Econ Theory 3, 565–570 (1993). https://doi.org/10.1007/BF01209702
Received:
Revised:
Issue Date:
DOI: https://doi.org/10.1007/BF01209702