Economic Dynamics：Discrete Time
This book is about the analytical and numerical tools for solving dynamic economic problems. The main theme is to introduce recursive methods, which should be in every economist’s toolkit. The main idea of recursive methods is to characterize economic dynamics by a set of state variables and a pair of functions. One function, called the state transition function, maps the state and the control (or action) of the model today into the state tomorrow. The other function, called the policy function, maps the state into the control of the model. Economic data may come from either a dynamic optimization problem or a market equilibrium. They can be extremely complicated and hard to analyze. Using a finite number of state variables and a pair of functions to summarize economic data simplifies the analysis significantly.