Solving the Stochastic Growth Model by Using Quadrature Methods and Value-Function Iterations

George Tauchen
1990 Journal of business & economic statistics  
This article presents a solution algorithm for the capital growth model. The algorithm uses valuefunction iterations on a discrete state space. The quadrature method is used to set the grid for the exogenous process, and a simple equispaced scheme in logarithms is used to set the grid for the endogenous capital process. The algorithm can produce a solution to within four-digit accuracy using a state space composed of 1,800 points in total.
doi:10.2307/1391752 fatcat:znkafkhrqbbjhgbtdeqcqhu33u