Optimal Policies with Heterogeneous Agents: Truncation and Transitions

Xavier Ragot and François Le Grand

Working Papers from HAL

Abstract: We study the optimal provision of a public good in an heterogeneous-agent economy, with and without aggregate shocks. We rely on a method combining a Lagrangian approach and a truncation procedure that takes advantage of the restrictions imposed by the first-order conditions of the Ramsey problem. We compare these outcomes with those of other solution techniques considering transitions, as usually done in the literature. We have two main results. First, we find that the optimal Ramsey policy faces a time-inconsistency problem specific to incomplete-market economies, which is due to the non-optimality of private savings. This issue affects the solution based on the computation of transitions. Second, we find that the truncation approach provides quantitatively accurate estimates of the value of planner's instruments, both at the steady-state and during the dynamics. We also report a number of quantitative checks.

Keywords: Heterogeneous agents optimal Ramsey program truncation method aggregate shocks D31 D52 E21; Heterogeneous agents; optimal Ramsey program; truncation method; aggregate shocks D31; D52; E21 (search for similar items in EconPapers)
Date: 2023-01-04
New Economics Papers: this item is included in nep-dge
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03922354v1
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://shs.hal.science/halshs-03922354v1/document (application/pdf)

Related works:
Journal Article: Optimal policies with heterogeneous agents: Truncation and transitions (2023)
Working Paper: Optimal Policies with Heterogeneous Agents: Truncation and Transitions (2023)
Working Paper: Optimal Policies with Heterogeneous Agents: Truncation and Transitions (2023)
Working Paper: Optimal Policies with Heterogeneous Agents: Truncation and Transitions (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:halshs-03922354

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().