Computing Economic Equilibria Using Projection Methods

Posted: 14 Aug 2020

See all articles by Alena Miftakhova

Alena Miftakhova

CER-ETH - Center of Economic Research at ETH Zurich

Karl Schmedders

IMD Lausanne

Malte Schumacher

University of Zurich - Department of Business Administration

Date Written: August 2020

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.

Suggested Citation

Miftakhova, Alena and Schmedders, Karl and Schumacher, Malte, Computing Economic Equilibria Using Projection Methods (August 2020). Annual Review of Economics, Vol. 12, pp. 317-353, 2020, Available at SSRN: https://ssrn.com/abstract=3669608 or http://dx.doi.org/10.1146/annurev-economics-080218-025711

Alena Miftakhova (Contact Author)

CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Karl Schmedders

IMD Lausanne ( email )

Lausanne, CH-1003
Switzerland
+41 (0)79 596 8956 (Phone)

Malte Schumacher

University of Zurich - Department of Business Administration ( email )

Rämistrasse 71
Zurich, CH-8006
Switzerland

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