This paper shows that a two-tiered production structure with both traded and non-traded intermediate goods and non-traded final goods can generate a cost of capital adjustment that is very similar to the quadratic adjustment cost often assumed in single good macroeconomic models. This implies...

Numerical methods for dynamic programming often use value function iteration and interpolation. We present a novel shape-preserving rational spline approximation method that improves value function iteration in terms of both stability and accuracy compared to more common methods.