Speedup algorithm: Both error bounds and policy iterations

 

With leisure utility, we only change functional settings:

 

fc(k,k1)=A*k^alpha*lstar^(1-alpha)+(1-delta)*k-k1

and

fu(x)=(x^(1-th)-1)/(1-th)+h(lbar-lstar)

 

for the same procedure. Here, we compute constant labor lstar from FOC of Bellman

 

equation with respect to labor. Given lstar, we set these above to the same procedure.

 

We implement the method of both error bounds and policy iterations by adding

 

opt=3 to opt=1 as well as to opt=2.