Behavior of capital

Recall the model with transition matrix:

where

and c changes depending on the state. That is,

from j=1 to m.

Here, each column sum in the transition matrix must be one.

Today we implement various types of approximations to m policy functions.

We start from the procedure as in 0930 with all options to calculate policy functions.

where we can see relatively small gaps in each points. If we consider a large transition

matrix, the gaps may become larger as in the case in changing theta.