A Tractable Overlapping Generations Structure for Quantitative DSGE Models

Robert Kollmann ()

No 2022-07, Working Papers ECARES from ULB -- Universite Libre de Bruxelles

Abstract: This paper develops a novel tractable overlapping generations (OLG) structure that is suitable for use in rich quantitative dynamic stochastic general equilibrium (DSGE) models. The OLG structure assumes that newborn agents receive a wealth transfer such that equilibrium consumption during the first period of life represents a time-invariant share of aggregate consumption. Under efficient risk sharing across contemporaneous cohorts, this implies that aggregate consumption obeys a (quasi-)Euler equation that is isomorphic to the Euler equation of an infinitely-lived representative agent. As a result, DSGE models, with the proposed OLG structure, can be solved as conveniently as standard DSGE models with infinitely-livedrepresentative agents. The great tractability of the OLG structure here constitutes an important advantage over conventional OLG models, especially when agents are long-lived. While highly tractable, the present OLG structure maintains key predictions of standard OLG models, namely the possibility of low (even negative) real interest rates and of equilibrium indeterminacy.

Keywords: overlapping generations; dynamic stochastic general equilibrium models; Euler equation; subjective discount factor; transversality condition; multiple equilibria (search for similar items in EconPapers)
Pages: 16 p.
Date: 2022-03
New Economics Papers: this item is included in nep-ban and nep-dge
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Journal Article: A tractable overlapping generations structure for quantitative DSGE models (2022)
Working Paper: A Tractable Overlapping Generations Structure for Quantitative DSGE Models (2022)
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