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Numerical simulation of the overlapping generations models with indeterminacy


Feng, Zhigang (2010). Numerical simulation of the overlapping generations models with indeterminacy. In: Washington University, St. Louis (US), 23 November 2010 - 23 November 2010, 1-23.

Abstract

In this paper we explore the computation and simulation of stochastic overlapping generation (OLG) models. To do so we compute all Markovian equilibria adopting a recently developed numerical algorithm. Among the models we studied, the indeterminacy in deterministic OLG model results in many different equilibrium paths corresponding to the initial condition that all asymptotically converge to the same steady state. The uncertainty introduces indeterminacy with infnite dimension due to the existence of numerous selections of transition and policy functions from the equilibrium set. Each selection correspondences a sequential competitive equilibrium that may present excessive volatile movements in asset price. It is possible to construct a continuum of recursive equilibrium. However our numerical simulations suggest that it is problematic to look at recursive equilibrium in which the volatility of asset price is solely determined by the distribution of the shock.

In this paper we explore the computation and simulation of stochastic overlapping generation (OLG) models. To do so we compute all Markovian equilibria adopting a recently developed numerical algorithm. Among the models we studied, the indeterminacy in deterministic OLG model results in many different equilibrium paths corresponding to the initial condition that all asymptotically converge to the same steady state. The uncertainty introduces indeterminacy with infnite dimension due to the existence of numerous selections of transition and policy functions from the equilibrium set. Each selection correspondences a sequential competitive equilibrium that may present excessive volatile movements in asset price. It is possible to construct a continuum of recursive equilibrium. However our numerical simulations suggest that it is problematic to look at recursive equilibrium in which the volatility of asset price is solely determined by the distribution of the shock.

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Additional indexing

Item Type:Conference or Workshop Item (Speech), not refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Stochastic OLG, Indeterminacy, Computation, Simulation
Language:English
Event End Date:23 November 2010
Deposited On:02 Nov 2010 15:29
Last Modified:05 Apr 2016 14:14
Permanent URL: https://doi.org/10.5167/uzh-35656

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