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Difference Equations

Difference Equations

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Published by hishamsauk

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Published by: hishamsauk on Mar 21, 2011
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04/07/2013

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I
NTERMEDIATE
M
ETHODS
:D
IFFERENCE
E
QUATIONS
 
D
IFFERENCE
E
QUATIONS
Not a whole lot of theory, really.
Difference Equations are concerned with DISCRETEchanges in a variable over time.
Differential equations were a continuous change, differenceequations look at data which is reported only once a timeperiod.
For example, lags
if you had a lagged variable in a model,then it·s rate of change over time would be modelled by adifference equation.
A typical difference equation looks like:
Y
t
= a + b
Y
t-1
We call such a difference equation a first orderdifference equation because it only goes back oneperiod.
 
D
IFFERENCE
E
QUATIONS
Primarily Concerned with two types of DifferenceEquation, homogenous and non-homogenous.
Pretty much the same definition as homogenous+ non-homogenous Dif. Equations.
Homogenous:
y
Y
t
= b
Y
t-1
y
A.k.a, ¶a = 0·
Non ² Homogenous:
y
Y
t
= a + b
Y
t-1

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