Staff Report 164

Solving the Stochastic Growth Model With a Finite Element Method

Ellen R. McGrattan | Consultant

Published October 1, 1993

Since it is the dominant paradigm of the business cycle and growth literatures, the stochastic growth model has been used to test the performance of alternative numerical methods. This paper applies the finite element method to this example. I show that the method is easy to apply and, for examples such as the stochastic growth method, gives accurate solutions within a second or two on a desktop computer. I also show how inequality constraints can be handled by redefining the optimization problem with penalty functions.

Published In: Journal of Economic Dynamics and Control (Vol 20, Num 1-3, March 1996, pp. 19-42)

Download Paper (pdf)

Additional Files (zip)

M-files and Ftools (zip)