Difference Equations

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).

 Methodological  Texts
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.

Applications in Articles
Yet to be identified . . . . .