OLG transition (deterministic simulation)


Thank you for help in advance! I really appreciate it.

I’m trying to add a deterministic “shock” to my otherwise quite basic 4 cohort overlapping generations model.

As is visible in the file below, in period 3 there is a increase in population. **The problem is, the resource constraint of the economy ( y= c + i ) does not hold during the transition. **The constraint starts to hold only when the demographic change is complete (and there is “stationary” demography). Do you guys have an idea how I could make this work in dynare?

Thank you for your time in advance.


olg_transit.mod (2.11 KB)

I don’t know what you are trying to do, but a simple way to deal with this could be to rewrite your resource constraint as:

y = c + i + e

where e is an exogenous variable, that is equal to zero in all periods except during the demographic change; but that means that you must explicitly set the value of e during the change.

Otherwise, you can decide that the resource constraint is simply ignored during the demographic change, so it means that you have one less equation during that period. But as a consequence you must also remove an endogenous variable, i.e. transform it into an exogenous (since for identifiability you need as many endogenous as there are equations). You can do this but it is a little tricky (it involves the macro-processor, and running Dynare two times, one for each part of the simulation).