Solving the Stochastic Growth Model With a Finite Element Method
Ellen R. McGrattan · 1993
Since it is the dominant paradigm of the business cycle and growth literatures, the stochastic growth model has been used to test the performance of alternative numerical methods. In this paper I apply the finite element method to this model. I show that the method is easy to apply and that, for examples such as the stochastic growth model, it gives accurate solutions within a second or two on a desktop computer. I also show how inequality constraints can be handled by redefining the optimization problem with penalty functions.