Dynamic Programming: application in macroeconomics

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The main objective of this course is to provide the mathematical rigor behind one of the methods most used to solve dynamic problems in economics: dynamic programming. This course is divided into two modules: the first one develops the mathematical elements that support dynamic programming, and the technique is explained in depth. In the second module this method is applied to growth and economic cycle models. In addition, in the latter module simulations of such models are performed in Matlab. These two modules seek a comprehensive understanding of dynamic programming, from its mathematical foundation to model simulation.


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Class 1: Fundamentals

This class note describe the problem that we want to solve with dynamic programming. It also describes the main mathematical concepts that we need for understanding dynamic programming.

Class 2: Dynamic programming

This class note contains an overview of the dynamic programming (function of value, Bellman's equation, functional problem and transformation of the sequential problem to the functional problem). In addition, the principle

Class 3: Applications

This class note contains two applications of the dynamic programming method: the first is a growth model with investment in human capital. The second is the model of Hercowitz and Sampson (1991).