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Lessons from a finitely-lived agents structural model

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We aim at identifying differences in the narrative for the Portuguese economy brought about by two estimated structural models, identical in all dimensions except the households structure. In the finitely-lived agents model, households live according to the overlapping-generations scheme. They have have stochastic finite lifetimes, attributing greater economic value to nearterm events. The infinitely-lived agents model follows standard practice in the literature. We show that the households structure triggers little quantitative differences in the narrative. When exist, they work mostly through the effects of demand shocks, which play a more prominent role in economic developments in the finitely-lived agents model, and which are alternatively channeled to technological perturbations in the infinitely-lived agents model. These differences do not convey an alternative narrative in qualitative terms and fail to deliver a dramatically different overview for the Portuguese economy over the 1999–2019 period. Two important components in this outcome are the presence of hand-to-mouth households in the infinitelylived agents model—which creates non-negligible non-Ricardian effects—and the always active fiscal rule—which greatly limits debt financing of public expenditures.
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