RESEARCH PAPER NO. 788
LOG-LINEARIZATION OF PERTURBED DYNAMICAL SYSTEMS, WITH APPLICATIONS TO OPTIMAL GROWTH
by
JOHN STACHURSKI
MAY 2001
Department of Economics. University of Melbourne. Melbourne Victoria 3010 Australia
ABSTRACT
It is common to study the asymptotic properties of log-linear stochastic systems by analyzing the behaviour of their linear counterparts. In this paper a formal justification for analysis by log-linearization is given. As an application, a new existence, uniqueness and stability condition is derived for equilibria in a standard class of multisector growth models with stochastic production. The condition can be seen as a generalization of existing equilibrium conditions for this class of models.
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