Non-standardMethodofDiscretizationontheExampleofGoodwinsGrowthCycleModel.docVIP

dr Ma?gorzata Guzowska Department of Econometrics and Statistics Faculty of Economics and Management University of Szczecin Non-standard method of discretization on the example of Goodwins Growth Cycle Model Abstract In theory of economics most models describing economic growth use differential equations. The Solows and Haavelmos models should be mentioned. However, in the moment of trial of their use by econometricians many questions arise. First, economic data are presented in discrete form what forces using of difference equations. Second, transition from continuous form to the discrete in order to estimate its parameters is still discussive. It has been observed for some times that standard (classical) discretization methods of differential equations often produce difference equations that do not share their dynamics (for example produce chaotic behavior). The essence of mentioned problems and proposal of their solution will be presented on the example of the Goodwins Growth Cycle model. Keywords: Computer simulation, Goodwin’s Growth Cycle model, Kahan’s discretization method. Introduction Systems of ordinary differential equations (ODEs) appear in various applications. Few ODEs can be solved explicitly. We often have to visualize the solutions by using discretization methods and computer programming. After applying a discretization (or numerical) method to system of ODEs, it produces a system of difference equations, or discrete time system. It has been observed for some time that the standard (classical) discretization methods of differential equations often produce difference equations that do not share their dynamics. An illustrative example is the logistic difference equations: . Euler’s discretization scheme produces the logistic difference equation , , , which possesses a remarkably different dynamics such as period – doubling bifurcation route to chaos [1]. This simple example shows, how use of the Euler method changes dynamic behavior of the mode