Title: Auth: Ellen R. McGrattan
Book Summary: This research paper explores a unique, cross-disciplinary application of the Finite Element Method (FEM), taking it out of its traditional engineering context and applying it to quantitative macroeconomic theory. It demonstrates how FEM can be used to solve nonlinear stochastic dynamic growth models, which are heavily used in modern economics to study business cycles and economic policies.
The report highlights that traditional linear approximation methods often fail when handling models with significant nonlinearities or high volatility. McGrattan details how dividing the economic model’s state space into small element subdomains allows for a highly accurate piecewise approximation of decision rules, even under stochastic (random) shocks. It serves as a foundational text for computational economists looking to apply robust engineering mathematics to complex macroeconomic systems.
