SOLVING THE STOCHASTIC GROWTH-MODEL WITH A FINITE-ELEMENT METHOD

Since it is the dominant paradigm of the business cycle and growth lit eratures, the stochastic growth model has been used to test the perfor mance of alternative numerical methods, In this paper I apply the fini te element method to this model. I show that the method is easy to app ly and that, for examples such as the stochastic growth model, it give s accurate solutions within a second or two on a desktop computer. I a lso show how inequality constraints can be handled by redefining the o ptimization problem with penalty functions.