Solving Rational Expectations Models Using Excel

Abstract

The paper explains how simple problems of discrete time optimal control can be solved using a standard spreadsheet software. The employed solution method of backward iteration is intuitively understandable, does not require any programming skills, and is very easy to implement so that it is suitable for classroom exercises with rational expectations models. The paper explains the method in general and shows how the basic models of neoclassical growth and real business cycles are solved using Microsoft Excel.

JEL Classification: C61, A23, O40