The seminal work of Fudenberg and Tirole (1985) on how preemption erodes the value of an option to wait raises general questions about the relation between models in discrete and continuous time and thus about the interpretation of its central result, relying on an "infinitely fine grid". Here...

This paper proposes a simple iterative method - time iteration - to solve linear rational expectation models. I prove that this method converges to the solution with the smallest eigenvalues in absolute value, and provide the conditions under which this solution is unique. In particular, if...