Solution Methods in Transition Dynamics
This chapter introduces two numerical methods for solving recursive dynamic optimization problems in deterministic form: the time elimination method by Mulligan and Sala-i-Martin (1991, 1993) and the backward integration method by Brunner and Strulik (2002). Both procedures involve solving for transitional dynamics backwardly from a given initial value. Both methods improve upon the common procedure known as “shooting” (e.g. Judd, 1998, Chapter 10). Various other methods are also available, but they are not discussed here.
KeywordsSolution Method Transition Dynamics Negative Eigenvalue Policy Function Stable Equilibrium Point
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