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Modelling the pension system in an overlapping-generations general equilibrium modelling framework

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  • Verbic, Miroslav

Abstract

This article presents a theoretical contribution to the field of overlapping-generations general equilibrium modelling, i.e. an upgrade of this branch of models with a pension system. Within the pension block we model both the first pension pillar, financed on a pay-as-you-go basis, and the fully-funded second pillar of the Slovenian pension system. The modelling of the first pension pillar is based on cash flows of the mandatory pension insurance institution, the relationship between the pension base and the pension, and the process of harmonising pension growth to wage growth. The modelling of the second pillar centres on implementation of the liquidity constraint. Use was made of supplementary pension profiles, and the ratio between premia paid and pensions paid out from supplementary pension insurance. The category of total pension was also introduced, and the model ensured that at every point households adjusted the scope of labour supply and their current consumption towards the target total pension.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10350.

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Date of creation: Mar 2007
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Handle: RePEc:pra:mprapa:10350

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Related research

Keywords: first pension pillar; general equilibrium models; liquidity constraint; MCP; overlapping generations; PAYG; pension system; second pension pillar;

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References

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  1. Modigliani, Franco, 1985. "Life Cycle, Individual Thrift and the Wealth of Nations," Nobel Prize in Economics documents 1985-1, Nobel Prize Committee.
  2. Rasmussen, Tobias N. & Rutherford, Thomas F., 2004. "Modeling overlapping generations in a complementarity format," Journal of Economic Dynamics and Control, Elsevier, vol. 28(7), pages 1383-1409, April.
  3. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  4. Verbic, Miroslav, 2007. "Varying the parameters of the Slovenian pension system: an analysis with an overlapping-generations general equilibrium model," MPRA Paper 10349, University Library of Munich, Germany.
  5. Rutherford, Thomas F., 1995. "Extension of GAMS for complementarity problems arising in applied economic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1299-1324, November.
  6. Aglietta, Michel & Chateau, Jean & Fayolle, Jacky & Juillard, Michel & Le Cacheux, Jacques & Le Garrec, Gilles & Touze, Vincent, 2007. "Pension reforms in Europe: An investigation with a computable OLG world model," Economic Modelling, Elsevier, vol. 24(3), pages 481-505, May.
  7. Ketil Hviding & Marcel Mérette, 1998. "Macroeconomic Effects of Pension Reforms in The Context of Ageing Populations: Overlapping Generations Model Simulations for Seven OECD Countries," OECD Economics Department Working Papers 201, OECD Publishing.
  8. Miroslav Verbic & Boris Majcen & Renger van Nieuwkoop, 2005. "Sustainability of the Slovenian Pension System: An Analysis with an Overlapping-generations General Equilibrium Model," GE, Growth, Math methods 0507010, EconWPA.
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Cited by:
  1. Cai Cai Du & Joan Muysken & Olaf Sleijpen, 2011. "Economy wide risk diversification in a three-pillar pension system," DNB Working Papers 286, Netherlands Central Bank, Research Department.

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