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Approximating infinite-horizon models in a complementarity format: A primer in dynamic general equilibrium analysis.

Lau, M.I.; Pahlke, A.; Rutherford, T.F.

Authors

A. Pahlke

T.F. Rutherford



Abstract

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.

Citation

Lau, M., Pahlke, A., & Rutherford, T. (2002). Approximating infinite-horizon models in a complementarity format: A primer in dynamic general equilibrium analysis. Journal of Economic Dynamics and Control, 26(4), 577-609. https://doi.org/10.1016/s0165-1889%2800%2900071-3

Journal Article Type Article
Publication Date 2002-04
Journal Journal of Economic Dynamics and Control
Print ISSN 0165-1889
Publisher Elsevier
Volume 26
Issue 4
Pages 577-609
DOI https://doi.org/10.1016/s0165-1889%2800%2900071-3
Keywords Intertemporal optimization; Infinite-horizon equilibria; Terminal constraints
Public URL https://durham-repository.worktribe.com/output/1627615