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Arbeiten mit Numerischen Gleichgewichtsmodellen. Ein Einführungsmodell. Assumptions of the model. OLG model Steady state solution 2 generations , live for 2 periods Fixed labor supply in period 1 No labor supply in period 2 (retired) Period 1: wage income Period 2: interest earnings.
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Arbeiten mit Numerischen Gleichgewichtsmodellen Ein Einführungsmodell
Assumptions of the model • OLG model • Steady state solution • 2 generations , live for 2 periods • Fixed labor supply in period 1 • No labor supply in period 2 (retired) • Period 1: wage income • Period 2: interest earnings
The optimal consumption decision • Budget constraint: • Utility function: • Max U s.t. B.C. using lagrange
Aggregation • No population growth • The size of both cohords are equal
Factor prices • Production function • Profit function • First order conditions
General equilibrium • All markets (labor, goods, assets) must clear • But no restrictions on labor market: • Capital market is simply: • GE when equilibrium on goods market: • Simulation:
Iteration procedure Initial guess of K r and w c1, a2 and c2 new value of K Aggregation: C and K Y(K,L) Check: |Y-C| < 0.000001 no yes General equilibrium
Convergence to steady state • Why do we even reach a solution? • Because
Potential and expansions • Adjust parameters, interaction effects, optimal tax • Smopec • Public sector • More generations • More periods • Transition period • Etc….