ABSTRACT
Introduction The models we have been discussing to this point have basically been linear, and the analysis has been in terms of linear difference equations. Even in Chapter 5, ‘Intertemporal optimization’, when we ran into expressions like U ′(ct+1) = U ′(ct )/β(1 + r), which is a nonlinear first-order difference equation (FODE) in c, we assumed a form for the utility function which made things neatly linear: if U(c)= ln(c), we had ct+1 =β(1+ r)ct , a linear, homogeneous, FODE.
