OLG fife cycle model transition paths: alternate model forecast method

Richard William Evans () and Kerk Layne Phillips ()

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: Computable General Equilibrium Models; Heterogeneous Agents; Overlapping Generations Model; Distribution of Savings (search for similar items in EconPapers)
JEL-codes: D31 C68 C63 D91 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-cmp, nep-dge, nep-for and nep-ore
Date: 2010-08-20
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http://mpra.ub.uni-muenchen.de/24548/ original version (application/pdf)
http://mpra.ub.uni-muenchen.de/38245/ revised version (application/pdf)

Related works:
Working Paper: OLG Life Cycle Model Transition Paths: Alternate Model Forecast Method (2012)
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:24548

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