On the recursive saddle point method

In this paper we use the recursive saddle point method developed by Marcet and Marimon (1999, 2011) to a simple concave dynamic optimization problem. While the recursive saddle point problem is well dened and delivers the correct value of our optimization problem, it does not generate only optimal policies. Indeed some of the solutions that it produces are either suboptimal or do not even satisfy feasibility. We identify the reasons underlying this failure and discuss its implications for some existing applications.