Druk Dungkar Model
Date: April 2026
Author: Pema Dorji
Prepared for: Ministry of Finance, Royal Government of Bhutan
Department: Department of Macro-Fiscal and Development Finance
Topic: Fiscal Policy, Demographic Change & Long-Run Macroeconomic Analysis
Publication type: Technical / Working Paper
Model type: Dynamic 55-Generation Overlapping Generations (OLG) General Equilibrium Model
Theoretical basis: Auerbach & Kotlikoff (1987); Australian Treasury's OLGA model
Solution method: Gauss-Seidel iterative method (steady-state and transition dynamics)
Cite as: Dorji, P. (2026). Druk-Dungkar: A 55-Generation Overlapping Generations Model. Department of Macro-Fiscal and Development Finance, Ministry of Finance. https://mof.gov.bt/wp-content/uploads/2026/04/Technical-manual-55-OLG-base-04152026-V1.pdf

Abstract

The Druk-Dungkar Model is a dynamic, 55-generation overlapping generations (OLG) general equilibrium model developed to analyze fiscal policy, demographic changes, and external sector dynamics in Bhutan. The model is conceptually grounded in the life cycle framework of Auerbach and Kotlikoff (1987) and closely follows the structure of the Australian Treasury's OLGA model, while incorporating features relevant to small, government-led, and externally constrained economies. The model consists of 55 overlapping cohorts representing individuals aged 21 to 75, heterogeneous across nine employment sectors and income profiles. Households make forward-looking decisions on consumption and saving over their lifecycle, while firms operate under competitive conditions using a Cobb-Douglas production technology. A detailed fiscal block captures labor, consumption, and business taxes, government expenditure composition, and public debt dynamics. The external sector reflects Bhutan's pegged exchange rate regime, limited capital mobility, and reliance on hydropower exports and external financing. The model is calibrated to Bhutanese macroeconomic data and solved using a Gauss-Seidel iterative method to obtain both steady-state and transition dynamics.

Key Features

Generations & Age Range55 overlapping cohorts covering individuals aged 21 to 75
Household Heterogeneity9 employment sector groups: AGR, AMF, GOV, DOMHH, NGO, PVTB, PVTC, PUB, SOE
Household BehaviorForward-looking lifecycle consumption and savings decisions with CRRA utility
Production TechnologyCompetitive firms with Cobb-Douglas production function and endogenous wages and returns
Fiscal BlockLabor, consumption and business taxes; current & capital expenditure; domestic and external public debt
Pension SystemSector-specific pension benefits for AMF, GOV, PUB and SOE retirees; calibrated to NPPF replacement rates
External SectorPegged exchange rate regime with hydropower exports, remittances, grants and foreign reserve dynamics
CalibrationCalibrated to Bhutan's 2023 macroeconomic data using Gauss-Seidel steady-state solution

Downloads

Model code & data files Available upon request
Contact / Further Information

For technical queries regarding this model, please contact the Department of Macro-Fiscal and Development Finance, Ministry of Finance, Royal Government of Bhutan.
mfpd@mof.gov.bt

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