We propose a method to compute equilibria in dynamic models with several continuous state variables and occasionally binding constraints. These constraints induce non-differentiabilities in policy functions. We develop an interpolation technique that addresses this problem directly: It locates...

This paper presents a vintage capital model assuming putty–clay investment and perfect foresight. The model is written in discrete time and is simulated by using a second order relaxation algorithm. By computing the eigenvalues of the dynamic system, we have checked the conditions of existence...

We show how to enhance the performance of a Smolyak method for solving dynamic economic models. First, we propose a more efficient implementation of the Smolyak method for interpolation, namely, we show how to avoid costly evaluations of repeated basis functions in the conventional Smolyak...

The problem of computing equilibria for general equilibrium models with incomplete real asset markets, or GEI models for the sake of brevity, is reconsidered. It is shown here that the rank-dropping behavior of the asset return matrix could be dealt with in rather a simple fashion: We first...

This paper discusses a series of Monte Carlo experiments designed to evaluate the empirical properties of Heterogeneous-Agent macroeconomic models in the presence of sampling variability. The calibration procedure leads to the welfare analysis being conducted with the wrong parameters. The...

This paper quantitatively characterizes optimal tax systems in a model of overlapping generations, when transitional cohorts are explicitly taken into account. We use the recent study of Conesa et al. (2009) as an example, but extend it by transitional dynamics. We furthermore develop a general...

This paper presents a numerical method for solving stochastic general equilibrium models with dynamic portfolio choice. The method can be applied to models with heterogeneous agents, time-varying investment opportunity sets, and incomplete asset markets. We illustrate the method using a...

This paper studies the long-run aggregate and welfare effects of eliminating Social Security in a quantitative dynamic general equilibrium life-cycle model where parents and their children are linked by voluntary and accidental bequests. Social Security in this model with impure altruism has a...

Empirical observations raise interesting questions regarding the sources of the excessive volatility in the R&D sector as well as the nature of the relation between the sector and aggregate fluctuations. Using US data for the period 1959–2007, we identify sectoral technology and capital...

We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme. When labor is scarcer it becomes more expensive and innovation investments that increase labor...