Non-steady-state equilibrium solution of a class of dynamic models

We study a class of monetary and growth models by using both analytic and numerical tools. In particular, we consider a model that was studied by Rotemberg, (Journal of Political Economy, 92 (1984) 40-58) and provide a solution to the open problem concerning the existence of the non-steady-state equilibrium of the model. We investigate the stable manifold solution to the underlying dynamical system and then use it to generate the equilibrium path. We use a fixed point iteration to numerically evaluate the stable manifold solution and eventually discover the exact solution. This investigation gives another illustration of the potential power of the general approach developed by the author that combines mathematical analysis and numerical simulations. © 2001 Elsevier Science B.V.