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Numerical Solution Methods

In: Economic Growth

Author

Listed:
  • Alfonso Novales

    (Complutense University of Madrid)

  • Esther Fernández

    (Complutense University of Madrid)

  • Jesús Ruiz

    (Complutense University of Madrid)

Abstract

We start by considering the stochastic optimal growth model of Chap. 4 , without taxes, explaining the construction of linear and log-linear approximations. Different solution methods are described: the Blanchard and Kahn approach, Uhlig’s method of undetermined coefficients, and Sims’ method based on an eigenvalue–eigenvector decomposition. We pay special attention to characterizing stability. We explain their practical implementation and discuss some of the results obtained. After that, we implement the same methods to solve the stochastic optimal growth model under different tax specifications and discuss some policy issues. The chapter closes with nonlinear solution methods, such as Marcet’s Parameterized Expectations and Projection methods. We apply them to the standard Cass–Koopmans growth model and provide MATLAB programs for their implementation.

Suggested Citation

  • Alfonso Novales & Esther Fernández & Jesús Ruiz, 2022. "Numerical Solution Methods," Springer Texts in Business and Economics, in: Economic Growth, edition 3, chapter 5, pages 213-278, Springer.
    • Handle: RePEc:spr:sptchp:978-3-662-63982-5_5
    DOI: 10.1007/978-3-662-63982-5_5
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    Cited by:

    1. He, Yong, 2018. "On the sustainability of maximizing GDP Growth," MPRA Paper 88549, University Library of Munich, Germany.
    2. Smith, Matthew, 2018. "Demand-Led Growth Theory in a Classical Framework: Its Superiority, Its Limitations, and Its Explanatory Power," Centro Sraffa Working Papers CSWP29, Centro di Ricerche e Documentazione "Piero Sraffa".
    3. Sergey Kondyan & Karine Yenokyan, 2019. "The Effect of Foreign Direct Investment on Economic Growth," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(4), pages 532-564, October.
    4. Ji Uk Kim, 2020. "Technology diffusion, absorptive capacity, and income convergence for Asian developing countries: a dynamic spatial panel approach," Empirical Economics, Springer, vol. 59(2), pages 569-598, August.
    5. Kazunori Nakajima & Hisayoshi Morisugi & Masafumi Morisugi & Naoki Sakamoto, 2014. "Measurement of flood damage due to climate change by dynamic spatial computable general equilibrium model," ERSA conference papers ersa14p673, European Regional Science Association.
    6. Piotr Pietraszewski, 2016. "Microeconomic fundamentals of the aggregate production function with constant returns to scale," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 45.

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