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Solving The Neoclassical Growth Model With Quasi-Geometric Discounting: Non-Linear Euler-Equation Models

  • Lilia Maliar


    (Universidad de Alicante)

  • Serguei Maliar

    (Universidad de Alicante)

The neoclassical growth model with quasi-geometric discounting is shown by Krusell and Smith (2000) to have multiple solutions. As a result, value-iterative methods fail to converge. The set of equilibria is however reduced if we restrict our attention to the interior (satisfying the Euler equation) solution. We study the performance of the grid-based and the simulation-based Euler-equation methods in the given context. We find that both methods converge to an interior solution in a wide range of parameter values, not only in the ''test'' model with the closed-form solution but also in more general settings, including those with uncertainty.

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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2003-23.

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Length: 26 pages
Date of creation: Jul 2003
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2003-23
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  1. Per Krusell & Anthony A Smith, Jr., 2001. "Consumption Savings Decisions with Quasi-Geometric Discounting," NajEcon Working Paper Reviews 625018000000000251,
  2. David I. Laibson & Andrea Repetto & Jeremy Tobacman, 1998. "Self-Control and Saving for Retirement," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 91-196.
  3. Krusell, Per & Kuruscu, Burhanettin & Smith, Anthony Jr., 2002. "Equilibrium Welfare and Government Policy with Quasi-geometric Discounting," Journal of Economic Theory, Elsevier, vol. 105(1), pages 42-72, July.
  4. repec:tpr:qjecon:v:114:y:1999:i:4:p:1125-1152 is not listed on IDEAS
  5. repec:tpr:qjecon:v:112:y:1997:i:2:p:443-77 is not listed on IDEAS
  6. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  7. Christopher Harris & David Laibson, 1999. "Dynamic Choices of Hyperbolic Consumers," Harvard Institute of Economic Research Working Papers 1886, Harvard - Institute of Economic Research.
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