1. Arbeiten mit Numerischen Gleichgewichtsmodellen Ein Einführungsmodell

2. Assumptions of the model OLG model Steady state solution 2 generations, live for 2 periods Fixed labor supply in period 1 No labor supply in period 2 (retired) Period 1: wage income Period 2: interest earnings

3. The optimal consumption decision Budget constraint: Utility function: Max U s.t. B.C. using lagrange

4. Aggregation No population growth The size of both cohords are equal

5. Factor prices Production function Profit function First order conditions

6. General equilibrium All markets (labor, goods, assets) must clear But no restrictions on labor market: Capital market is simply: GE when equilibrium on goods market: Simulation:

7. Iteration procedure Initial guess of K r and w c 1, a 2 and c 2 Aggregation: C and K Y(K,L) Check: |Y-C| < 0.000001 General equilibrium yes no new value of K

8. Convergence to steady state Why do we even reach a solution? Because

9. Potential and expansions Adjust parameters, interaction effects, optimal tax Smopec Public sector More generations More periods Transition period Etc….