chapter  17
32 Pages

Linear difference equations

In the study of many problems, the change in a variable is most naturally modeled

in discrete units of time. For many bank loans, interest is computed on a monthly

basis so that the level of debt is updated on a monthly basis. Government data

are routinely released on a quarterly or annual basis, firms report profit each

quarter. Thus, unemployment data or profit data are seen as sequences ut,ut−1, . . .

or pit,pit−1, . . .. When the data evolve according to a systematic pattern, difference

equations may be used to study long-run behavior.