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A Tractable Overlapping Generations Structure for Quantitative DSGE Models


  • Robert Kollmann


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.

Suggested Citation

  • Robert Kollmann, 2022. "A Tractable Overlapping Generations Structure for Quantitative DSGE Models," Working Papers ECARES 2022-07, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/341255

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    References listed on IDEAS

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    More about this item


    overlapping generations; dynamic stochastic general equilibrium models; Euler equation; subjective discount factor; transversality condition; multiple equilibria;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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