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A Simple and Intuitive Method to Solve Small Rational Expectations Models

Author

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  • Holger Strulik

    ()

  • Martin Brunner

    ()

Abstract

We present a non-linear solution method of saddlepoint dynamics in discrete time optimization problems. It is based on the backward attractivity of the stable manifold and is very easy to implement. After an introduction to the general method we present two applications. First we consider the deterministic neoclassical growthmodel and demonstrate accuracy and stability of the method. Second we solve a basic real business cycle model.

Suggested Citation

  • Holger Strulik & Martin Brunner, 2001. "A Simple and Intuitive Method to Solve Small Rational Expectations Models," Quantitative Macroeconomics Working Papers 20106, Hamburg University, Department of Economics.
  • Handle: RePEc:ham:qmwops:20106
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    File URL: http://www.rrz.uni-hamburg.de/wst/qmwps/strulik.pdf
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    Cited by:

    1. Holger Strulik, 2004. "Solving Rational Expectations Models Using Excel," The Journal of Economic Education, Taylor & Francis Journals, vol. 35(3), pages 269-283, July.

    More about this item

    Keywords

    Saddlepoint Problems; Non-linear Dynamics; Stochastic Economic Growth;

    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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