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Dynamic Programming in Economic Models Neoclassical Growth Model Bellman Equation Dr. Keshab R Bhattarai Business School, University of Hull.

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Presentation on theme: "Dynamic Programming in Economic Models Neoclassical Growth Model Bellman Equation Dr. Keshab R Bhattarai Business School, University of Hull."— Presentation transcript:

1 Dynamic Programming in Economic Models Neoclassical Growth Model Bellman Equation Dr. Keshab R Bhattarai Business School, University of Hull

2 Keshab Bhattarai2 Neo-classical Growth Model: Current Value Hamiltonian

3 Keshab Bhattarai3 Optimality and Boundary Conditions

4 Keshab Bhattarai4 Characterisation of the Balanced Growth Path

5 Keshab Bhattarai5 Transitional Dynamics-1

6 Keshab Bhattarai6 Transitional Dynamics-2

7 Keshab Bhattarai7 Transitional Dynamics-2

8 Keshab Bhattarai8 Saddle Point Solution

9 Keshab Bhattarai9 Subject to Brock-Mirman(1972)dynamic programming problem Bellmans Equations Value function

10 Keshab Bhattarai10 Solution by Iteration First and Second Iteration of the Value function

11 Keshab Bhattarai11 Third Iteration of the Value function

12 Keshab Bhattarai12 Fourth Iteration of the Value function

13 Keshab Bhattarai13 Limits of the Value Function in Infinite Iterations

14 Keshab Bhattarai14 Limits of the Value Function in Infinite Iterations

15 Keshab Bhattarai15 References Bellman, R (1957) Dynamic Programming, Princeton University Press. Brock W and L Mirman (1972) Optimal Economic Growth and Uncertainty: the Discounted Case, Journal of Economic Theory 4(3): Cass, D. (1965): Optimum Growth in Aggregative Model of Capital Accumulation, Review of Economic Studies, 32: Ljungqvist L and T.J. Sargent (2000), Recursive Macroeconomic theory, MIT Press Parente S.L.(1994) Technology Adoption, Learning-by-Doing, and Economic Growth, Journal of Economic Theory, 63, pp Sargent TJ (1987) Dynamic Macroeconomic Theory, Chapter 1, Harvard University Press. Solow, R.M. (1956) A Contribution to the Theory of Economic Growth. Quarterly Journal of Economics 70, Stokey, N. L. and R.E. Lucas (1989) Recursive Methods in Economic Dynamics, Harvard UP, Cambridge, MA. Uzawa, H. (1962) On a Two-Sector Model of Economic Growth, Review of Economic Studies 29,


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