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Lecture Notes on Dynamic Programming

Lecture Notes on Dynamic ProgrammingEconomics 200E, Professor Bergin, Spring 1998 Adapted from Lecture Notes of Kevin Salyer and from Stokey, Lucas and Prescott (1989)Outline1) A Typical Problem2) A Deterministic Finite Horizon ) Finding necessary ) A special ) Recursive solution3) A Deterministic Infinite Horizon ) Recursive ) Envelope ) A special ) An analytical ) Solution by ) Solution by iteration4) A Stochastic ) Introducing ) Our special case ) Finding Typical ProblemConsider the problem of optimal growth (Cass-Koopmans Model). Recall that in the Solowmodel the saving rate is imposed, and there is no representation of preferences. The optimalgrowth model adds preferences for households, and derives an optimal saving rate.

the limit and the max operators: 4@ * 4 A <" [A | 'f L ES| ˝9’* 4 ... It involves two types of variables. First, state variables are a complete description of the current position of the system. In this case the capital stock going into the current period, &f is the state variable. Second, control variables are the variables that

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