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Using MS Excel to solve and simulate the Life-Cycle/Permanent-Income Model of Consumption and Saving

Author

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  • Findley, T. Scott

Abstract

The objective of this manuscript is to provide a simple guide to instructors and students on how to solve and simulate a discrete-time specification of the Life-Cycle/Permanent-Income Model of Consumption and Saving (LCPI Model) using only algebra and basic calculus. The solution and simulation procedure makes use of the simple computing environment in MS Excel. Understanding this process will enable students to operate and experiment with one of the preeminent models that is used in modern economic analysis. The dynamic LCPI Model in this manuscript includes a social security program to demonstrate some relevant applications of the solution technique and methods.

Suggested Citation

  • Findley, T. Scott, 2014. "Using MS Excel to solve and simulate the Life-Cycle/Permanent-Income Model of Consumption and Saving," International Review of Economics Education, Elsevier, vol. 16(PB), pages 129-146.
    • Handle: RePEc:eee:ireced:v:16:y:2014:i:pb:p:129-146
    DOI: 10.1016/j.iree.2013.05.002
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    Cited by:

    1. Bongers, Anelí & Gómez, Trinidad & Torres, José L., 2020. "Teaching dynamic General equilibrium macroeconomics to undergraduates using a spreadsheet," International Review of Economics Education, Elsevier, vol. 35(C).
    2. Tsigaris, Panagiotis & Wood, Joel, 2016. "A simple climate-Solow model for introducing the economics of climate change to undergraduate students," International Review of Economics Education, Elsevier, vol. 23(C), pages 65-81.
    3. John Gilbert & Onur A. Koska & Reza Oladi, 2023. "Building and using nonlinear simulations in Excel with an application to the specific factors model," Southern Economic Journal, John Wiley & Sons, vol. 89(4), pages 1242-1265, April.
    4. Gorry, Devon & Gilbert, John, 2015. "Numerical simulations of competition in quantities," International Review of Economics Education, Elsevier, vol. 18(C), pages 49-61.
    5. Pezzino, Mario, 2016. "Understanding strategic competition using numerical simulations and dynamic diagrams in Mathematica," International Review of Economics Education, Elsevier, vol. 22(C), pages 34-47.
    6. John Gilbert & Onur A. Koska & Reza Oladi, 2022. "Building and Using Nonlinear Excel Simulations: An Application to the Specific Factors Model," Working Papers in Economics 22/08, University of Canterbury, Department of Economics and Finance.

    More about this item

    Keywords

    Life-Cycle/Permanent-Income Model; Consumption; Saving; Social security; Dynamic optimization; MS Excel;
    All these keywords.

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • A23 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Graduate
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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