Evans, Richard W. and Phillips, Kerk L. (2010): OLG life cycle model transition paths: alternate model forecast method.
This is the latest version of this item.
Download (309Kb) | Preview
The overlapping generations (OLG) model is an important framework for analyzing any type of question in which age cohorts are affected differently by exogenous shocks. However, as the dimensions and degree of heterogeneity in these models increase, the computational burden imposed by rational expectations solution methods for non-stationary equilibrium transition paths increases exponentially. As a result, these models have been limited in the scope of their use to a restricted set of applications and a relatively small group of researchers. In addition to providing a detailed description of the benchmark rational expectations computational method, this paper presents an alternative method for solving for nonstationary equilibrium transition paths in OLG life cycle models that is new to this class of model. We find that our alternate model forecast method reduces computation time to 15 percent of the benchmark time path iteration computation time, and the approximation error is less than 1 percent.
|Item Type:||MPRA Paper|
|Original Title:||OLG life cycle model transition paths: alternate model forecast method|
|Keywords:||Computable General Equilibrium Models, Heterogeneous Agents, Overlapping Generations Model, Distribution of Savings|
|Subjects:||D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C68 - Computable General Equilibrium Models
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C63 - Computational Techniques; Simulation Modeling
D - Microeconomics > D9 - Intertemporal Choice and Growth > D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving
|Depositing User:||Kerk Phillips|
|Date Deposited:||20. Apr 2012 15:40|
|Last Modified:||15. Feb 2013 23:02|
Aruoba, S. B., J. Fernandez-Villaverde, and J. F. Rubio-Ramirez (2006): “Comparing Solution Methods for Dynamic Equilibrium Economies," Journal of Economic Dynamics and Control, 30(12), 2477-2508.
Auerbach, A. J., and L. J. Kotlikoff (1987): Dynamic Fiscal Policy. Cambridge University Press. Christiano, L. J. (2002): “Solving Dynamic General Equilibrium Models by a Method of Undetermined Coefficients," Computational Economics, 20(1-2), 21-55.
Christiano, L. J., and J. D. Fisher (2000): “Algorithms for Solving Dynamic Models with Occasionally Binding Constraints," Journal of Economic Dynamics and Control, 24(8), 1179-1232.
Fernandez-Villaverde, J., and J. F. Rubio-Ramirez (2006): “Solving DSGE Models with Perturbation Methods and a Change of Variables," Journal of Economic Dynamics and Control, 30(12), 2509-2531.
Ghiglino, C., and K. Shell (2003): “The Economic Effects of Restrictions on Government Budget Deficits: Imperfect Private Credit Markets," Economic Theory, 21(2/3), 399-421.
Krusell, P., and A. A. Smith, Jr. (1998): “Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, 106(5), 867-896.
Mankiw, N. G., and R. Reis (2002): “Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Quarterly Journal of Economics, 117(4), 1295-1328.
Nishiyama, S., and K. Smetters (2007): “Does Social Security Privatization Produce Efficiency Gains?," Quarterly Journal of Economics, 122(4), 1677-1719.
Samuelson, P. A. (1958): “An Exact Consumption-Loan Model of Interest With or Without the Social Contrivance of Money," Journal of Political Economy, 66(6), 467-482.
Sims, C. A. (2003): “Implications of Rational Inattention," Journal of Monetary Economics, 50(3), 665-690.
Solow, R. M. (2006): “Overlapping Generations," in Samuelsonian Economics and the Twenty-First Century, ed. by M. Szenberg, L. Ramrattan, and A. A. Gottesman, pp. 34-41.
Oxford University Press. Stokey, N. L., and R. E. Lucas, Jr. (1989): Recursive Methods in Economic Dynamics. Harvard University Press. Taylor, J. B., and H. Uhlig (1990): “Solving Nonlinear Stochastic Growth Models: A Comparison of Alternative Solution Methods," Journal of Business and Economic Statistics, 8(1), 1-17.
Uhlig, H. (1999): “A Toolkit for Analyzing Nonlinear Dynamic Stochastic Models Easily," in Computational Methods for the Study of Dynamic Economies, ed. by R. Marimon, and A. Scott, pp. 30-61.
Oxford University Press, New York. Weil, P. (2008): “Overlapping Generations: The First Jubilee," Journal of Economic Perspectives, 22(4), 115-134.
Wendner, R. (2004): “Existence, Uniqueness, and Stability of Equilibrium in an OLG Economy," Economic Theory, 23(1), 165-174.
Available Versions of this Item
OLG fife cycle model transition paths: alternate model forecast method. (deposited 22. Aug 2010 00:26)
- OLG life cycle model transition paths: alternate model forecast method. (deposited 20. Apr 2012 15:40) [Currently Displayed]