Springer – 2009, 716 pages
ISBN: 3540856846, 9783540856849
Introduces the use of numerical methods for solving dynamic general equilibrium models
Features coverage applicable to the models most widely used in modern macroeconomics and monetary economics
Provides algorithms and program codes on an accompanying website
Second edition with three additional chapters and several new applications
Modern business cycle theory and growth theory uses stochastic dynamic general equilibrium models. In order to solve these models, economists need to use many mathematical tools. This book presents various methods in order to compute the dynamics of general equilibrium models.
In part I, the representative-agent stochastic growth model is solved with the help of value function iteration, linear and linear quadratic approximation methods, parameterised expectations and projection methods. In order to apply these methods, fundamentals from numerical analysis are reviewed in detail.
In part II, the authors discuss methods in order to solve heterogeneous-agent economies. This part of the book also serves as an introduction to the modern theory of distribution economics. Applications include the dynamics of the income distribution over the business cycle or the demographic transition in a large-scale overlapping generations model.
Contents:
Representative Agent Models: Basic Models.- Perturbation Methods.- Deterministic Extended Path.- Discrete State Space Methods.- Parameterized Expectations.- Projection Methods. Heterogenous Agent Models: Computation of Stationary Distributions.- Dynamics of the Distribution Function.- Overlapping Generations Models with Perfect Foresight.- Overlapping Generations Models with Uncertainty. Tools: Numerical Methods.- Various Other Tools.