ECON 5760

Computational Economics

Dr. Philip Shaw

Dealy Hall, East 522

Phone: 718-817-4048


Office Hours: Monday, 2pm-3:30pm & Thursday 2pm-3:30pm.

The aim of this course is to explore methods used to compute numerical solutions to dynamic stochastic general equilibrium (DSGE) models with applications to both macroeconomics and finance.  The course begins with a rigorous exploration of numerical methods including function approximation, numerical differentiation and integration, non-linear equations, numerical optimization, and the simulation of multivariate Markov processes.  Utilizing these tools, we will pursue solution methods such as discrete state space methods and parameterized expectations.  Finally the class will end with solution methods designed to solve models with heterogeneous agents with and without uninsurable risk.  

The grading for the class breaks down as follows:

Midterm (50%)

Final Exam (50%)


Heer, Burkhard and Maussner, Alfred, 2009.  "Dynamic General Equilibrium Modeling: Computational Methods and Applications"., Springer, 2nd ed.

Software: Matlab

Where to get Matlab: Click here!

David Griffiths' Guide to Matlab: Download here!

Practice Problems Posted Below:


Matlab Code Posted Below:

taylorapprox.m taylorapproxvec.m lip.m lipvec.m myfun.m CDDer.m bilinear.m bilineardemo.m myfunps2.m CDJac.m capitalsim.m NC.m NCint.m NR.m eulereq.m invarmarkov.m markovsim.m

Course Outline

I. Numerical Methods

Section 11.2: Function Approximation

11.2.1 Taylor's Theorem

11.2.3 Linear Interpolation

Section 11.3 Numerical Differentiation and Integration

11.3.1 Differentiation

11.3.2 Numerical Integration

Section 11.5 Non-Linear Equations

11.5.1 Single Equations

11.5.2 Multiple Equations

Section 12.2 Markov Processes

Simulating Markov Chains

II. Discrete State Space Methods

Chapter 4

Bellman, R. 1954. "The Theory of Dynamic Programming". RAND Working Paper P-550. Download Here!

Kopecky, K. and Suen, R. 2010 "Finite state Markov-chain approximations to highly persistent processes". Review of Economic Dynamics, 13(3), 701-714. Download Here!

III. Parameterized Expectations

Chapter 5

Marcet, A. and Marshall, D. 1994 "Solving Nonlinear Rational Expectations Models by Parameterized Expectations: Convergence to Stationary Solutions". Federal Reserve Bank of Minneapolis, Discussion Paper 91. Download Here!

Den Haan, W. and Marcet, A. 1994 "Accuracy in Simulations". The Review of Economic Studies, 61(1), 3-17. Download Here!

Wouter Den Hann's Lecture on Accuracy Tests

Maliar, L. and Maliar, S. 2003 "Parameterized Expectations Algorithm and the Moving Bounds". Journal of Business and Economic Statistics, 21(1), 88-92. Download Here!

IV. Computation of Stationary Distributions

Chapter 7

Aiyagari, S. Rao 1994 "Uninsured Idiosycratic Risk and Aggregate Saving". The Quarterly Journal of Economics, 109(3), 659-684. Download Here!

Hansen, G. and Imrohoroglu, A. 1992 "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard". Journal of Political Economy, 100(1), 118-42. Download Here!

V. Dynamics of the Distribution Function

Chapter 8

Krusell, P. and Smith, A. 1998. "Income and Wealth Heterogeneity in the Macroeconomy". Journal of Political Economy, 106, 867-96. Download Here!

VI. Deterministic Overlapping Generations Models

Chapter 9