Computation of Equilibria in OLGModels with Many Heterogeneous Households<BR>

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Thomas F. Rutherford, ETH Zurich<BR>

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Abstract:<BR>

This paper develops a decomposition algorithm by which a market economy with many
households may be solved through the computation of equilibria for a sequence of representative
agent economies. The paper examines local and global convergence properties of the
sequential recalibration (SR) algorithm. SR is then demonstrated to efficiently solve Auerbach-
Kotlikoff OLG models with a large number of heterogeneous households. We approximate
equilibria in OLG models by solving a sequence of related Ramsey optimal growth problems.
This approach can provide improvements in both efficiency and robustness as compared with
simultaneous solutionmethods.

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Joint work with Sebastian Rausch.