Publication details for Prof Morten LauLau, M.I., Pahlke, A. & Rutherford, T.F. (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.
- Publication type: Journal papers: academic
- ISSN/ISBN: 0165-1889
- DOI: 10.1016/S0165-1889(00)00071-3
- Keywords: Intertemporal optimization; Infinite-horizon equilibria; Terminal constraints
- View online: Online version
- Durham research online: DRO record
Author(s) from Durham
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.
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