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On the Use of Projection Methods in the Computation of OLG Models / Zur Berechnung von OLG-Modellen mit Hilfe von Projektionsmethoden

Listed author(s):
  • Heer Burkhard

    ()

    (Universität zu Köln, Staatswissenschaftliches Seminar, Albertus-Magnus Platz, D-50923 Köln. Tel.: 0221/4 70-43 54, Fax: 0221/4 70-5068)

  • Trede Mark

    ()

    (Universität zu Köln, Seminar für Wirtschafts- und Sozialstatistik, Albertus- Magnus Platz, D-50923 Köln. Tel.: 0221/4 70-22 83)

We compare projection methods with the standard value function grid algorithm in order to solve overlapping generations models. We apply the methods to a particular 60-period OLG model with elastic labor supply in order to study the effects of unfunded public pensions on aggregate savings and employment. For given accuracy, projection methods are found to dominate standard value function grid methods in terms of speed and required storage capacity. Furthermore, we apply projection methods to problems characterized by a multi-dimensional state space. Our results suggest that such more complex problems are also solvable with the help of ordinary personal computers using projection methods, while the use of value function grid methods may require excessive computer time and storage capacity with regard to current PC technology.

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Article provided by De Gruyter in its journal Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik).

Volume (Year): 220 (2000)
Issue (Month): 1 (February)
Pages: 32-47

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Handle: RePEc:jns:jbstat:v:220:y:2000:i:1:p:32-47
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  1. Judd, Kenneth L., 1992. "Projection methods for solving aggregate growth models," Journal of Economic Theory, Elsevier, vol. 58(2), pages 410-452, December.
  2. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 83-114, June.
  3. Deaton, A., 1989. "Saving And Liquidity Constraints," Papers 153, Princeton, Woodrow Wilson School - Public and International Affairs.
  4. Evans, Owen J, 1983. "Tax Policy, the Interest Elasticity of Saving, and Capital Accumulation: Numerical Analysis of Theoretical Models," American Economic Review, American Economic Association, vol. 73(3), pages 398-410, June.
  5. Hartley, Peter R., 1996. "Value function approximation in the presence of uncertainty and inequality constraints an application to the demand for credit cards," Journal of Economic Dynamics and Control, Elsevier, vol. 20(1-3), pages 63-92.
  6. James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
  7. Hubbard, R Glenn & Judd, Kenneth L, 1987. "Social Security and Individual Welfare: Precautionary Saving, Borrowing Constraints, and the Payroll Tax," American Economic Review, American Economic Association, vol. 77(4), pages 630-646, September.
  8. Kocherlakota, Narayana R., 1990. "On the 'discount' factor in growth economies," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 43-47, January.
  9. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, September.
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