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Approximation Methods: an Application to the Core-Periphery Model

  • Marco Maffezzoli
  • Federico Trionfetti

A feature of new economic geography model is their mathematical intractability. This intractability results from the fact that the functional relationship between the indirect utility differential and the state variable cannot be found explicitly. We illustrate three methods that can be utilized to approximate the unknown function. These methods are simple and give a remarkable improvement in the precision of approximation with respect to the commonly utilized Lagrange approximation. Precision of approximation is important in models that feature catastrophic behavior. We apply these methods to the core-periphery model. Naturally, they can be applied to all cases of unknown functional relationships.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 219.

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Handle: RePEc:igi:igierp:219
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  1. Richard E. Baldwin, 1999. "The Core-Periphery Model with Forward-Looking Expectations," NBER Working Papers 6921, National Bureau of Economic Research, Inc.
  2. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  3. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, June.
  4. Fukao, Kyoji & Benabou, Roland, 1993. "History versus Expectations: A Comment," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 535-42, May.
  5. Puga, Diego, 1999. "The rise and fall of regional inequalities," European Economic Review, Elsevier, vol. 43(2), pages 303-334, February.
  6. Fujita, Masahisa & Thisse, Jacques-François, 1996. "Economics of Agglomeration," CEPR Discussion Papers 1344, C.E.P.R. Discussion Papers.
  7. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002. "Agglomeration and Trade Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May.
  8. Gianmarco I. P. Ottaviano & Diego Puga, 1998. "Agglomeration in the Global Economy: A Survey of the 'New Economic Geography'," The World Economy, Wiley Blackwell, vol. 21(6), pages 707-731, 08.
  9. Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May.
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