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Solution of continuous-time dynamic models with inequality constraints

Timo Trimborn ()

Economics Letters, 2013, vol. 119, issue 3, 299-301

Abstract: I propose a simple method to compute the transition process in continuous-time dynamic equilibrium models with occasionally binding inequality constraints. By augmenting the dynamic system with an auxiliary variable standard algorithms are able to solve the extended dynamic system taking the inequality into account. The procedure can handle any sequence of regimes with binding and non-binding constraints and determines the exact pattern of regimes endogenously.

Keywords: Inequality constraint; Continuous-time dynamic models; Transitional dynamics; Ramsey model (search for similar items in EconPapers)
JEL-codes: C61 C63 O40 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1016/j.econlet.2013.02.026

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