Anticipated Shocks in Continuous-time Optimization Models: Theoretical Investigation and Numerical Solution

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Diskussionsbeitrag ; No. 363

Classification and Topics

• Classification: Wirtschaft ; Economic Growth and Aggregate Productivity: General ; Computational Techniques; Simulation Modeling ; Optimization Techniques; Programming Models; Dynamic Analysis
• Subject: anticipated shocks ; continuous-time optimization ; numerical solution

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Trimborn, Timo
• Event: Veröffentlichung
• (who): Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät
• (where): Hannover
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/22475
• Last update: 10.03.2025, 11:41 AM CET