Continuous vs Discrete Time Modelling in Growth and Business Cycle Theory

Omar Licandro (), Luis Puch and Jesus Ruiz

No 2018-28, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: Economists model time as continuous or discrete. For long, either alternative has brought about relevant economic issues, from the implementation of the basic Solow and Ramsey models of growth and the business cycle, towards the issue of equilibrium indeterminacy and endogenous cycles. In this paper, we introduce to some of those relevant issues in economic dynamics. First, we describe a baseline continuous vs discrete time modelling setting relevant for questions in growth and business cycle theory. Then we turn to the issue of local indeterminacy in a canonical model of economic growth with a pollution externality whose size is related to the model period. Finally, we propose a growth model with delays to show that a discrete time representation implicitly imposes a particular form of time–to–build to the continuous time representation. Our approach suggests that the recent literature on continuous time models with delays should help to bridge the gap between continuous and discrete time representations in economic dynamics.

Keywords: Discrete Time; Continuous Time; Solow model; Ramsey model; Indeterminacy; Time–to–Build; Delay Differential Equations. (search for similar items in EconPapers)
JEL-codes: E10 E22 O40 Q50 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2018-10
New Economics Papers: this item is included in nep-dge, nep-gro and nep-mac
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