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Definition: The transversality condition limits solutions to an infinite period dynamic optimization problem. Intuitively, it rules out those that involve accumulating, for example, infinite debt.

The transversality condition (TC) can be obtained by considering a finite, T-period horizon version of the problem of maximizing present value, obtaining the first-order condition for nt+T, and then taking the limit of this condition as T goes to infinity.

The form is often:

(TC) lim bT.... = 0


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