Computation of Equilibria in OLG Models with Many Heterogeneous Households

Abstract

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 solution-methods.Computable general equilibrium, overlapping generations, microsimulation, sequential recalibration