Anticipated Shocks in Continuous-time Optimization Models: Theoretical Investigation and Numerical Solution
AbstractWe derive the well-known continuity principle for adjoint variables for preannounced or anticipated changes in parameters for continuous-time, infinite-horizon, perfect foresight optimization models. For easy and intuitive numerical computation of the resulting multi point boundary value problem we suggested to simulate the resulting differential algebraic system representing the first order conditions. By ensuring that the state variables and the adjoint variables are continuous, potential jumps in the control variables are calculated automatically. This can be easily conducted with the relaxation algorithm as proposed by Trimborn et al. (2007). We solve a Ramsey model extended by an elementary Government sector numerically. Simulations of a preannounced increase in the consumption tax show a qualitative different pattern depending on the intertemporal elasticity of substitution.
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Bibliographic InfoPaper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover with number dp-363.
Length: 20 pages
Date of creation: Apr 2007
Date of revision:
anticipated shocks; continuous-time optimization; numerical solution;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-04-28 (All new papers)
- NEP-CMP-2007-04-28 (Computational Economics)
- NEP-DGE-2007-04-28 (Dynamic General Equilibrium)
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