Overlapping Generations Models with Perfect Foresight

This chapter studies overlapping generations (OLG) models as pioneered by Auerbach and Kotlikoff. Here, agents differ not only with regard to their individual productivity or wealth but also with regard to their age. Heer and Maußner pay particular attention to the computation of the steady state in a large-scale OLG model with more than one hundred endogenous variables — the curse of dimensionality — and to updating the transition path for the aggregate variables. Two applications in this chapter include the study of Laffer curves and the consequences of the demographic transition for the US economy.