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Computation of Equilibria in OLGModels with Many Heterogeneous Households

  • Sebastian Rausch

    ()

    (Department of Economics, University of Duisburg-Essen, Germany; Ruhr Graduate School in Economics, Essen, Germany)

  • Thomas F. Rutherford

    ()

    (The Swiss Federal Institute of Technology (ETH-Zürich), Switzerland)

This paper develops a decomposition algorithm by which a market economy with many households may be solved through the computation of equilibria for a sequence of representative agent economies. The paper examines local and global convergence properties of the sequential recalibration (SR) algorithm. SR is then demonstrated to efficiently solve Auerbach- Kotlikoff OLG models with a large number of heterogeneous households. We approximate equilibria in OLG models by solving a sequence of related Ramsey optimal growth problems. This approach can provide improvements in both efficiency and robustness as compared with simultaneous solution methods.

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Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 08/90.

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Length: 53 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:eth:wpswif:08-90
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  1. Robert M. Townsend & Kenichi Ueda, 2006. "Financial Deepening, Inequality, and Growth: A Model-Based Quantitative Evaluation -super-1," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 251-293.
  2. Sebastian Rausch & Thomas F. Rutherford, 2008. "Computation of Equilibria in OLGModels with Many Heterogeneous Households," CER-ETH Economics working paper series 08/90, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  3. Timothy J. Kehoe & David K. Levine, 1982. "Comparitive Statics and Perfect Foresight in Infinite Horizon Economies," UCLA Economics Working Papers 259, UCLA Department of Economics.
  4. Jensen, Svend E Hougaard & Rutherford, Thomas F, 2002. " Distributional Effects of Fiscal Consolidation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 471-93, September.
  5. Rutherford, Thomas & Tarr, David & Shepotylo, Oleksandr, 2005. "Poverty effects of Russia's WTO accession : modeling"real"households and endogenous productivity effects," Policy Research Working Paper Series 3473, The World Bank.
  6. François Bourguignon & Amedeo Spadaro, 2006. "Microsimulation as a tool for evaluating redistribution policies," Journal of Economic Inequality, Springer, vol. 4(1), pages 77-106, April.
  7. Lau, Morten I. & Pahlke, Andreas & Rutherford, Thomas F., 2002. "Approximating infinite-horizon models in a complementarity format: A primer in dynamic general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 26(4), pages 577-609, April.
  8. Arntz, Melanie & Boeters, Stefan & Gürtzgen, Nicole & Schubert, Stefanie, 2006. "Analysing welfare reform in a microsimulation-AGE model: the value of disaggregation," ZEW Discussion Papers 06-76, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Barbie Martin & Hagedorn Marcus & Kaul Ashok, 2004. "Assessing Aggregate Tests of Efficiency for Dynamic Economies," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-17, December.
  10. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
  11. Larch, Martin, 1993. "Dynamically Inefficient Equilibria in the Auerbach-Kotlikoff Model," Empirical Economics, Springer, vol. 18(1), pages 159-72.
  12. Herbert E. Scarf, 1959. "Some Examples of Global Instability of the Competitive Equilibrium," Cowles Foundation Discussion Papers 79, Cowles Foundation for Research in Economics, Yale University.
  13. Luc Savard, 2005. "Poverty and Inequality Analysis within a CGE Framework: A Comparative Analysis of the Representative Agent and Microsimulation Approaches," Development Policy Review, Overseas Development Institute, vol. 23(3), pages 313-331, 05.
  14. 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.
  15. 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.
  16. Fehr, Hans, 2000. " Pension Reform during the Demographic Transition," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 419-43, June.
  17. Rutherford, Thomas F. & Tarr, David G., 2008. "Poverty effects of Russia's WTO accession: Modeling "real" households with endogenous productivity effects," Journal of International Economics, Elsevier, vol. 75(1), pages 131-150, May.
  18. Cororaton, Caesar B. & Cockburn, John, 2007. "Trade reform and poverty--Lessons from the Philippines: A CGE-microsimulation analysis," Journal of Policy Modeling, Elsevier, vol. 29(1), pages 141-163.
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