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Numerical Simulation of Nonoptimal Dynamic Equilibrium Models

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Author Info

  • Zhigang Feng

    (ISB, University of Zurich, and Department of Economics, University of Miami)

  • Jianjun Miao

    ()
    (Department of Economics, Boston University)

  • Adrian Peralta-Alva

    (Research Division, Federal Reserve Bank of Saint Louis)

  • Manuel S. Santos

    (Department of Economics, University of Miami)

Abstract

In this paper we present a recursive method for the computation of dynamic competitive equilibria in models with heterogeneous agents and market frictions. This method is based on a convergent operator over an expanded set of state variables. The fixed point of this operator defines the set of all Markovian equilibria. We study approximation properties of the operator as well as the convergence of the moments of simulated sample paths. We apply our numerical algorithm to two growth models, an overlapping generations economy with money, and an asset pricing model with financial frictions.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number wp2009-013.

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Length: 47
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Handle: RePEc:bos:wpaper:wp2009-013

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Keywords: Heterogeneous agents; taxes; externalities; financial frictions; competitive equilibrium; computation; simulation;

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Citations

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Cited by:
  1. Balbus, Łukasz & Reffett, Kevin & Woźny, Łukasz, 2013. "A constructive geometrical approach to the uniqueness of Markov stationary equilibrium in stochastic games of intergenerational altruism," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 1019-1039.
  2. Jaime McGovern & Olivier Morand & Kevin Reffett, 2013. "Computing minimal state space recursive equilibrium in OLG models with stochastic production," Economic Theory, Springer, vol. 54(3), pages 623-674, November.
  3. Yi Wen & Huabin Wu, 2008. "Dynamics of externalities: a second-order perspective," Working Papers 2008-044, Federal Reserve Bank of St. Louis.
  4. Felix Kubler & Johannes Brumm, 2013. "Applying Negishi's method to stochastic models with overlapping generations," 2013 Meeting Papers 1352, Society for Economic Dynamics.
  5. Manuel S. Santos & Adrian Peralta-Alva, 2012. "Analysis of Numerical Errors," Working Papers 2012-6, University of Miami, Department of Economics.
  6. Zhigang Feng, 2013. "Tackling indeterminacy in overlapping generations models," Computational Statistics, Springer, vol. 77(3), pages 445-457, June.
  7. Winfried Koeniger & Thomas Hintermaier, 2012. "Collateral constraints and macroeconomic volatility," 2012 Meeting Papers 390, Society for Economic Dynamics.
  8. Crettez, Bertrand & Morhaim, Lisa, 2012. "Existence of competitive equilibrium in a non-optimal one-sector economy without conditions on the distorted marginal product of capital," Mathematical Social Sciences, Elsevier, vol. 63(3), pages 197-206.
  9. Thomas Mertens, 2012. "Solving General Incomplete Market Models with Substantial Heterogeneity," 2012 Meeting Papers 1173, Society for Economic Dynamics.
  10. Adrian Peralta-Alva & Manuel S. Santos, 2010. "Problems in the Numerical Simulation of Models with Heterogeneous Agents and Economic Distortions," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 617-625, 04-05.
  11. Balbus, Łukasz & Reffett, Kevin & Woźny, Łukasz, 2012. "Stationary Markovian equilibrium in altruistic stochastic OLG models with limited commitment," Journal of Mathematical Economics, Elsevier, vol. 48(2), pages 115-132.

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