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Solution of Perfect Foresight Saddlepoint Problems: A Simple Method and Applications

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  • Martin Brunner

    ()

  • Holger Strulik

    ()

Abstract

Economists frequently confine themselves to the qualitative analysis of continuous optimization problems or they restrict their quantitative analysis to inaccurate methods like linearization around the steady state. The fact that the solution is characterized by an inherently unstable adjustment path arriving at a boundary value in infinite time, however, does not necessarily imply a complicated solution method. The paper explains and demonstrates the method of backward integration, a recursive solution method that does not only reveal the exact adjustment path but that is also very easy to use.

Suggested Citation

  • Martin Brunner & Holger Strulik, 1998. "Solution of Perfect Foresight Saddlepoint Problems: A Simple Method and Applications," Quantitative Macroeconomics Working Papers 19805, Hamburg University, Department of Economics.
  • Handle: RePEc:ham:qmwops:19805
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    File URL: http://www.rrz.uni-hamburg.de/wst/qmwps/qmwp598.ps
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    More about this item

    Keywords

    Economic Growth; Transitional Economics; Saddlepoint Problems;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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