Approximating Infinite-Horizon Models in a Complementarity Format: A Primer in Dynamic General Equilibrium Analysis

Morten Lau, Andreas Pahlke, Thomas F. Rutherford

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Abstrakt

We demonstrate the advantages of the complementarity formulation for approximating infinite-horizon equilibria in neoclassical growth models as compared with techniques originally developed for optimal planning models. The complementarity approach does not require an ex ante specification of the growth rate in the terminal period and is therefore suitable for models with endogenous growth or short time horizons. We also consider approximation issues in models with multiple infinitely lived agents. Changes in net indebtedness over a finite period are estimated as part of the model to obtain a precise approximation of the infinite-horizon equilibria with a small number of time periods.
OriginalsprogEngelsk
TidsskriftJournal of Economic Dynamics and Control
Vol/bind26
Udgave nummer4
Sider (fra-til)577-609
ISSN0165-1889
DOI
StatusUdgivet - apr. 2002
Udgivet eksterntJa

Emneord

  • Intertemporal Optimization
  • Infinite-horizon Equilibria
  • Terminal Constraints

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