A note on aggregation and the Lucas critique

Article Abstract:

The consequences of aggregation on various macroeconomic modeling methods were studied. A small example economy, where all households have the same intertemporal consumption problem, but with various parameters of the utility functions and various exogenous income activities, was used. Three models were used: a representative agent rational expectations model, a simple form of the permanent income hypothesis and a time series model. The three models function properly in a stable economic environment. However, only the representative agent model stood up to the Lucas critique.

Economics, Research and Development in the Social Sciences and Humanities, Macroeconomics

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Dynamic optimal taxation in small open economies

Article Abstract:

The influence of cross-border capital movements on optimal taxation regimes is considered. Analysis indicates that this influence is minimal because perfect capital mobility does not significantly alter the way optimal tax paths are determined in closed economies. Furthermore, analysis also shows that the optimal taxation regime is not necessarily the one associated with the worldwide system. In addition, the analysis illustrates that the worldwide taxation rate is not needed in computing optimal capital taxation in small economies.

Taxation, Capital movements, Capital

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Chow's method of optimal control

Article Abstract:

Linear-quadratic approximations using the stochastic growth model can alternate to Chow's(1993) numerical solutions of stochastic dynamic optimization problems. It leads to a first-order approximation of the decision rule in stationary states only with low new and original problem control variables. It also does not allow for heteroskedasticity unless the exact value function is nearly quadratic.

Analysis, Tests, problems and exercises, Dynamic programming, Quadratic programming, Approximation theory, Approximation

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