Computing Transitional Cycles for a Deterministic Time-to-Build Growth Model

Hwan Lin

Computational Economics, 2018, vol. 51, issue 3, No 14, 677-696

Abstract: Abstract Capital investment requires a gestation lag for being productive. This time-to-build feature can lead to an autonomous system of mixed-type functional differential equations (FDEs), causing aggregate fluctuations for a deterministic economy. We present a continuation method to solve a system of mixed FDEs by solving a sequence of boundary value problems for systems of ordinary differential equations (ODEs). Unlike other iteration techniques, this method can avoid the need to predetermine both forward-looking and backward-looking difference terms. The strategy is to form a homotopy that can deform a simpler ODE system into a target FDE system, while treating the deformation process as a sequence of ODEs. We can thereby compute oscillatory cycles for a time-to-build economy while it is in transition to the steady state.

Keywords: Time-to-build; Cycles; Transition dynamics; Continuation method; Homotopy; Deformation process; Functional differential equations (search for similar items in EconPapers)
JEL-codes: C63 E13 E32 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10614-016-9633-9

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