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How long does a generation last? Assessing the relationship between infinite and finite horizon dynamic models

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  • Guerrazzi, Marco

Abstract

This paper aims at assessing the temporal relationship that exists between the time reference of dynamic models with infinite and finite horizon. Specifically, comparing the optimal inter-temporal plans arising from an infinite-horizon model and a 2-period overlapping generations model in their stationary equilibria, I offer a straightforward way to determine the number of time periods of the former that may form a unit of time of the latter. In this way, I show that the theoretical length of a generation is an increasing function of the discount factor of the optimizing agent and I provide an economic rationale for such a relationship grounded on consumption smoothing.

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  • Guerrazzi, Marco, 2021. "How long does a generation last? Assessing the relationship between infinite and finite horizon dynamic models," MPRA Paper 105641, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:105641
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    References listed on IDEAS

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    More about this item

    Keywords

    Infinite horizon; Overlapping generations; Consumption smoothing; Discount rate;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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