LECTURE 18: DIFFERENCE EQUATIONS

Reference: Pemberton & Rau Section 21.4

We assume that the "time" variable t takes only integer values; thus variables depending on
time are now represented by sequences, say { y t } . We define the forward difference

operator Δ by
y t  y t 1  y t .

Application of the operator Δ may be regarded as the discrete-time counterpart of

differentiation with respect to time.
The discrete-time analogue of the differential equation
dy
 ay  b ,
dt
where a and b are constants, is the first-order difference equation
y t  ay t  b

which may be written as

y t 1  cy t  b ,

where c  a  1 .

First-order difference equations

To find the general solution of this difference equation means finding a formula giving all
sequences { y t } which satisfy it. As in the differential equation case, this will contain an

arbitrary constant which will be tied down if we specify the value of y t for some particular t.

We start with the very simple case where b  0 . Then

y t  (c) t y 0 for t  0,1,2... .

A similar argument shows that y t  (c) t y 0 for t  1,2... . In what follows, however, we

shall typically restrict t to non-negative integer values: we "begin the story" at time 0 and are
interested in what happens subsequently.
In the case where b  0 , we use a method which is very similar to that given in the last
Lecture for the analogous differential equations. We begin by finding a particular solution,
defined as a sequence {Yt } such that

Yt 1  cYt  b for all t .

We then set z t  y t  Yt obtaining

z t 1  cz t  0 .

This equation is called the associated homogeneous equation and the general solution for
z t is called the complementary solution.

The complementary solution is

z t  A(c) t ,

where A is an arbitrary constant.

To find the particular solution Yt , we try Yt=Y where Y is constant. The equation then
requires that Y  cY  b . Provided c  1 , this gives the particular solution
Yt  b /(1  c) for all t .

The general solution of the original equation is then

y t  (1  c) 1 b  A(c) t ,

the sum of the particular solution and the complementary solution.

Qualitative behaviour
The first-order difference equation

y t 1  cy t  b ,

where we assume that c  1 , has the general solution

y t  Y  A(c) t ,

where A is an arbitrary constant and Y is the constant particular solution, equal to b /(1  c) .

The stationary solution Y is such that if y 0 happens to be equal to Y, then y t  Y for all t.

We say that the stationary solution is stable if y t  Y as t   regardless of initial

conditions. It is clear from the general solution that this happens if and only if the limit of
(c) t as t   is 0 . Hence the stationary solution is stable if and only if c  1 .

If c  0 , so that  c is positive, then y t always stays on the same side of Y as y 0 , moving

towards or away from Y according as  1  c  0 or c  1 . On the other hand, if c  0 the

complementary solution A(c) t changes sign each period. This is known as alternating
behaviour. The stability condition given above tells us that alternations are explosive or
damped according as c  1 or 0  c  1 .
Exercises: Pemberton & Rau 21.4.1-21.4.6