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The discrete-time counterpart to differential equations. The section begins with an overview of first-order linear difference equations in deterministic environments. The analysis is then extended to cover linear stochastic equations with rational expectations, including both first-order and second-order equations. Later material (not in the text yet and not covered in class) looks at nonlinear equations and some applications to chaos theory in economic modeling. |
The problem set for this section can be found here (parts of this problem set will be due at different dates TBA in class). |
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Blanchard, Olivier J. (1979): "Backward and Forward Solutions for Economies with Rational Expectations." American Economic Review, Papers and Proceedings, 69(2):114-118. |
Taylor, J. (1977): "Conditions for Unique Solutions in Stochastic Models with Rational Expectations." Econometrica, 45:1377-85. |
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Yet to be identified . . . . . |