Wisconsin National Data Consortium

Overview

Extensions of general equilibrium models to account for investment and capital formation under consistent expectations have been in use for several decades. Lectures on Wednesday will focus on formulations of the WiNDC model which track investment response to shocks in international prices. The core model we work with is a Ramsey model in which intertemporal decisions are solved recursively. In our initial formulation, low income households operate on period-by-period budget constraints while higher income households optimize intertemporal dynastic welfare.

The afternoon lecture will present extensions of the dynastic model to represent overlapping generations of finitely lived households. In this approach (based on Rausch and Rutherford, 2007) the dynamic economy with many households is solved through the computation of a sequence of equilibria for a representative agent economies. This framework has been demonstrated to efficiently solve Auerbach-Kotlikoff OLG models with a large number of heterogeneous households.