A Simple and Intuitive Method to Solve Small Rational Expectations Models
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.
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