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Numerical Simulations of Reaching a Steady State: No Need to Generate Any Rational Expectations

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  • Harashima, Taiji

Abstract

It is not easy to numerically simulate the path to a steady state because there is no closed form solution in dynamic economic growth models in which households behave generating rational expectations. In contrast, it is easy if households are supposed to behave under the MDC (maximum degree of comfortability)-based procedure. In such a simulation, a household increases or decreases its consumption according to simple formulae. In this paper, I simulate the path when households behave under the MDC-based procedure, and the results of simulations indicate that households can easily reach a stabilized (steady) state without generating any rational expectations by behaving according to their feelings and guesses about their preferences and the state of the entire economy.

Suggested Citation

  • Harashima, Taiji, 2022. "Numerical Simulations of Reaching a Steady State: No Need to Generate Any Rational Expectations," MPRA Paper 115335, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:115335
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    References listed on IDEAS

    as
    1. Marcet, Albert & Sargent, Thomas J., 1989. "Convergence of least squares learning mechanisms in self-referential linear stochastic models," Journal of Economic Theory, Elsevier, vol. 48(2), pages 337-368, August.
    2. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    3. Harashima, Taiji, 2018. "Do Households Actually Generate Rational Expectations? “Invisible Hand” for Steady State," MPRA Paper 88822, University Library of Munich, Germany.
    4. Robert A. Becker, 1980. "On the Long-Run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(2), pages 375-382.
    5. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    6. Harashima, Taiji, 2010. "Sustainable Heterogeneity: Inequality, Growth, and Social Welfare in a Heterogeneous Population," MPRA Paper 22521, University Library of Munich, Germany.
    7. Harashima, Taiji, 2021. "Consequence of Heterogeneous Economic Rents under the MDC-based Procedure," MPRA Paper 105765, University Library of Munich, Germany.
    8. Harashima, Taiji, 2012. "Sustainable Heterogeneity as the Unique Socially Optimal Allocation for Almost All Social Welfare Functions," MPRA Paper 40938, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Balanced growth path; Economic growth model; Government transfer; Heterogeneity; Simulation; Steady state;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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