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A method for solving general equilibrium models with incomplete markets and many financial assets

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  • Evans, Martin D.D.
  • Hnatkovska, Viktoria

Abstract

This paper presents a numerical method for solving stochastic general equilibrium models with dynamic portfolio choice. The method can be applied to models with heterogeneous agents, time-varying investment opportunity sets, and incomplete asset markets. We illustrate the method using a two-country model with production. We check the accuracy of our method by comparing the numerical solution to a complete markets version of the model against its known analytic properties. We then apply the method to an incomplete markets version where no analytic solution is available. In all versions the standard accuracy tests confirm the effectiveness of our method.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 36 (2012)
Issue (Month): 12 ()
Pages: 1909-1930

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Handle: RePEc:eee:dyncon:v:36:y:2012:i:12:p:1909-1930

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Portfolio choice; Incomplete markets; Dynamic stochastic general equilibrium models;

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Citations

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Cited by:
  1. Martin D. D. Evans & Viktoria Hnatkovska, 2005. "International Capital Flows, Returns and World Financial Integration," NBER Working Papers 11701, National Bureau of Economic Research, Inc.
  2. Tille, Cédric & van Wincoop, Eric, 2014. "Solving DSGE portfolio choice models with dispersed private information," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 1-24.
  3. Bruno Bonizzi, 2013. "Capital Flows to Emerging Markets: An alternative Theoretical Framework," Working Papers 186, Department of Economics, SOAS, University of London, UK.

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