Chapter 5 - An Introduction to Intertemporal Modeling

Abstract

This chapter discusses the basic techniques used in intertemporal modeling and how they can be applied in building an intertemporal general equilibrium model. Intertemporal modeling uses a number of mathematical methods. The reading guide is intended to help you fill in gaps in knowledge of optimal control, differential equations, numerical methods, and linear algebra. It also includes references to the economic literature on intertemporal analysis. The problem set is in three parts. Part A helps set up and solve a simple investment problem. By performing qualitative analyses with the investment model in partial equilibrium, insight into how it works and learn some analytical techniques, which are useful in intertemporal modeling, is gained. Part B deals with methods of obtaining numerical results from such models. Part C first links the investment problem into a small, static general equilibrium model, thus producing an intertemporal general equilibrium model. Finally, the resulting model to analyze the effects of a number of different policies is available for use.