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The Stochastic Growth Model

The Stochastic Growth Model

This is a free, online textbook offered by Bookboon.com. "This article presents the stochastic growth model. The stochastic growth model is a stochastic version of the neoclassical growth model with microfoundations,1 and provides the backbone of a lot of macroeconomic models that are used in modern macroeconomic research. The most popular way to solve the stochastic growth model, is to linearize the model around a steady state,2 and to solve the linearized model with the method of undetermined coefficients. This solution method is due to Campbell (1994). The set-up of the stochastic growth model is given in the next section. Section 3 solves for the steady state, around which the model is linearized in section 4. The linearized model is then solved in section 5. Section 6 shows how the... Show More

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