TY - JOUR
T1 - Approximating Infinite-Horizon Models in a Complementarity Format
T2 - A Primer in Dynamic General Equilibrium Analysis
AU - Lau, Morten
AU - Pahlke, Andreas
AU - Rutherford, Thomas F.
PY - 2002/4
Y1 - 2002/4
N2 - 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.
AB - 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.
KW - Intertemporal Optimization
KW - Infinite-horizon Equilibria
KW - Terminal Constraints
KW - Intertemporal Optimization
KW - Infinite-horizon Equilibria
KW - terminal Constraints
U2 - 10.1016/S0165-1889(00)00071-3
DO - 10.1016/S0165-1889(00)00071-3
M3 - Journal article
SN - 0165-1889
VL - 26
SP - 577
EP - 609
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
IS - 4
ER -