Overlapping Generations

Economic Policy Analysis with Overlapping Generations Models (MACS 40000), University of Chicago, M.A. Program in Computational Social Science: Autumn 2016 and Autumn 2017

This course studies economic policy questions ideally addressed by the overlapping generations (OG) dynamic general equilibrium framework. OG models represent a rich class of macroeconomic general equilibrium model that is extremely useful for answering questions in which inequality, demographics, and individual heterogeneity are important. OG models are used extensively by the Joint Committee on Taxation, Congressional Budget Office, Department of the Treasury, and Federal Reserve System for policy analysis in the United States as well as in other developed nations. All the syllabus, references, and assignments for the course are available in the GitHub repository for the Autumn 2017 section of MACS 40000.

This course trains students how to set up and solve OG models. The standard nonlinear global solution method for these models--time path iteration--is a fixed point method that is similar to but significantly different from value function iteration and policy function iteration. This course takes students through progressively richer versions of the model, which will include endogenous labor supply, nontrivial demographics, bequests, stochastic income, multiple industries, non-balanced government budget constraint, and household tax structure. We focus on computational strategies, modularity of code, sensitivity and robustness to assumptions, and policy questions that can be answered with this framework. I taught this course using chapters of my draft textbook, Overlapping Generations Models for Policy Analysis: Theory and Computation by DeBacker and Evans (2018), which we have used in trainings in the United States, European Commission, and Indian Ministry of Finance.