2008/2/6 |
Q. On 60 periods simulation, after about 30th period, the optimal path becomes instable. Why does it occur? |
| A. Under the certain level discount rate, future values are estimated lower than present. the 30periods future means the 300 years future. Variations of variables in those years affect objective function very slightly. Therefor, at first glance, the paths of those years are different significantly, the difference of objective values is very small. Even if the paths are different we can say that all those solutions are optimal. The reason why DICE2007 model simulates for 600 years is to remove the influence of truncation. If we truncate the simulation with 100 years, the simulation is seriously affected by the terminal conditions, e.g. how much capital stock leaves future generation. However, in 600 years simulation, terminal conditions does not affect present 100 years. Important results are in at most100 years from the present. Thus we do not have to worry about 300 years future. |