Computing economic equilibria using projection methods

Alena Miftakhova, Karl Schmedders, Malte Schumacher

Research output: Contribution to journalReview articlepeer-review

Abstract

The analysis of dynamic economic models routinely leads to the mathematical problem of determining an unknown function for which no closed-form solution exists. Economists must then resort to methods of numerical approximation when analyzing such models. Among the computational methods that have been successfully applied in economics and finance, one set of techniques stands out due to its flexibility and robustness: projection methods. In this article, we describe the basic steps of these methods for several different applications, surveying many successful applications of projection methods to dynamic economic models. Importantly, we emphasize that the ever-increasing complexity and dimensionality of dynamic models have made the previously used simpler methods obsolete and the applications of projection methods all but mandatory. We closely examine the most recent endeavors in the literature on solving economic models with projection methods.

Original languageEnglish (US)
Pages (from-to)317-353
Number of pages37
JournalAnnual Review of Economics
Volume12
DOIs
StatePublished - Aug 2 2020
Externally publishedYes

Keywords

  • Dynamic models
  • Equilibria
  • Nonlinearities
  • Projection methods

ASJC Scopus subject areas

  • Economics and Econometrics

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