A Finite States Contraction Algorithm for Dynamic Models
The purpose of this work is to develop and apply numerical methods for a class of dynamic models. With a proper change of variables the dynamics system which governs the equilibrium path is shown to be equivalent to a functional or an operator equation. An algorithm which combines the finite element method with a contraction mapping iteration, providing existence and uniqueness for the equilibrium path, then follows. Numerical evidences show that the proposed algorithm is a powerful tool for solving dynamic models.
Keywordsdynamic models contraction algorithm monetary economics.
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