Policy function calculation from value function iterations

We consider the same problem as in 0724 again. That is,

where and

where u(x)=ln(x) as .

We set

that is the same AK model as before

and

that is CRRA utility function in general.

We get the index vector ind as in the procedure of 0724.

The index vector is a kind of correspondence index vector.

Starting from ind[i] for any i between 1 and n,

x<-ind[i]

The next one is

x<-ind[x]

We repeat this up until they do not change at all. We keep x’s and get a path of k’s

to the steady state.

Behavior of capital to steady state level

Behavior of consumption