Linear Methods are often used to compute approximate solutions to dynamic models, as these models often cannot be solved analytically. Linear methods are very popular, as they can easily be implemented. Also, they provide a useful starting point for understanding more elaborate numerical...

Approximating stochastic processes by finite-state Markov chains is useful for reducing computational complexity when solving dynamic economic models. We provide a new method for accurately discretizing general Markov processes by matching low order moments of the conditional distributions using...

This paper describes a method for solving heterogeneous agent models with aggregate risk and many idiosyncratic states formulated in discrete time. It extends the method proposed by Reiter (2009) and complements recent work by Ahn, Kaplan, Moll, Winberry, and Wolf (2017) on how to solve such...

The Rouwenhorst method of approximating stationary AR(1) processes has been overlooked by much of the literature despite having many desirable properties unmatched by other methods. In particular, we prove that it can match the conditional and unconditional mean and variance, and the first-order...

We characterize the balanced growth path of the basic neoclassical growth economy using standard, almost linear numerical solution methods, as well as the parameterized expectations approach, which preserves the nonlinearity in the model. We also apply the same methods after adding indivisible...

The termstructure of interest rates is an instrument that gives us the necessary information for valueing deterministic financial cash flows, measuring the economic market expectations and testing the effectiveness of monetary policy decissions. However, it is not directly observable and needs...

This paper presents a numerical nonlinear dynamic programming algorithm for solving so-called optimal learning or adaptive control problems. These are decision problems with unknown parameters where the decisionmaker updates beliefs by Bayes rule. The updating equations are nonlinear. As a...

The term structure of interest rates is an instrument that gives us the necessary information for valuing deterministic financial cash flows, measuring the economic market expectations and testing the effectiveness of monetary policy decisions. However, it is not directly observable and needs to...

This paper investigates private-value `reserve price' auctions when there is a strong bidder in an n-bidder model. Consider an auction model, in which bidders draw their values from the same distribution, but then identity of the high-value bidder is revealed. This can be more plausible than the...

The author explains how optimal-control problems can be solved with a common spreadsheet such as Microsoft Excel. He illustrates the method with several examples ranging from simple models to quite advanced topics. The method is intended to be beneficial to students and teachers working with...