Skip to main content
SpringerLink
Log in

Solving the Neoclassical Growth Model with Quasi-Geometric Discounting: A Grid-Based Euler-Equation Method

  • Published:
Computational Economics Aims and scope Submit manuscript

Abstract

The standard neoclassical growth model with quasi-geometric discounting is shown elsewhere (Krusell, P. and Smith, A., CEPR Discussion Paper No. 2651, 2000) to have multiple solutions. As a result, value-iterative methods fail to converge. The set of equilibria is however reduced if we restrict our attention to the interior (satisfying the Euler equation) solution. We study the performance of a grid-based Euler-equation methods in the given context. We find that such a method converges to an interior solution in a wide range of parameter values, not only in the “test” model with the closed-form solution but also in more general settings, including those with uncertainty.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Harris, C. and Laibson, D. (2001). Dynamic choices of hyperbolic consumers. Econometrica, 69(4), 935–959.

    Article  Google Scholar 

  • Judd, K. (2004). Existence, uniqueness, and computational theory for time consistent equilibria: A hyperbolic discounting example, manuscript.

  • Krusell, P. and Smith, A. (2000). Consumption-Savings Decisions with Quasi-Geometric Discounting. CEPR Discussion Paper No. 2651.

  • Krusell, P. and Smith, A. (2003). Consumption-savings decisions with quasi-geometric discounting. Econometrica, 71, 365–375.

    Article  Google Scholar 

  • Krusell, P., Kuruşçu, B. and Smith, A. (2002). Equilibrium welfare and government policy with quasi-geometric discounting. Journal of Economic Theory, 42–72.

  • Laibson, D. (1997). Golden eggs and hyperbolic discounting. Quarterly Journal of Economics, 112(2), 443–477.

    Article  Google Scholar 

  • Maliar, L. and Maliar, S. (2003). Solving the Neoclassical Growth Model with Quasi-Geometric Discounting: Non-Linear Euler-Equation Methods. IVIE Working Paper #AD 2003-23.

  • Maliar, L. and Maliar, S. (in press). The neoclassical growth model with heterogeneous quasi-geometric consumers. Journal of Money, Credit, and Banking.

  • Tauchen, G. (1986). Finite state Markov chain approximations to univariate and vector autoregressions. Economic Letters, 20, 177–181.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Departamento de Fundamentos del Análisis Económico, Universidad de Alicante, Campus San Vicente del Raspeig, Ap. Correos 99, 03080, Alicante, Spain

    Lilia Maliar & Serguei Maliar

Authors
  1. Lilia Maliar
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Serguei Maliar
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Lilia Maliar.

Additional information

JEL Classification: C73, D90, E21

Rights and permissions

Reprints and permissions

About this article

Cite this article

Maliar, L., Maliar, S. Solving the Neoclassical Growth Model with Quasi-Geometric Discounting: A Grid-Based Euler-Equation Method. Comput Econ 26, 163–172 (2005). https://doi.org/10.1007/s10614-005-1732-y

Download citation

  • Accepted:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10614-005-1732-y

Key words

Search

Navigation