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Title:Anticipated Shocks in Continuous-time Optimization Models: Theoretical Investigation and Numerical Solution PDF Logo
Authors:Trimborn, Timo
Issue Date:2007
Series/Report no.:Diskussionspapiere des Fachbereichs Wirtschaftswissenschaften, Universität Hannover 363
Abstract:We derive the well-known continuity principle for adjoint variables for preannounced or anticipated changes in parameters for continuoustime, infinite-horizon, perfect foresight optimization models. For easy and intuitive numerical computation of the resulting multi point boundary value problem we suggested to simulate the resulting differential algebraic system representing the first order conditions. By ensuring that the state variables and the adjoint variables are continuous, potential jumps in the control variables are calculated automatically. This can be easily conducted with the relaxation algorithm as proposed by Trimborn et al. (2007). We solve a Ramsey model extended by an elementary Government sector numerically. Simulations of a preannounced increase in the consumption tax show a qualitative different pattern depending on the intertemporal elasticity of substitution.
Subjects:anticipated shocks
continuous-time optimization
numerical solution
JEL:O40
C63
C61
Document Type:Working Paper
Appears in Collections:Diskussionspapiere, Wirtschaftswissenschaftliche Fakultät, Universität Hannover

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