Approximate Recursive Equilibrium with Minimal State Space
AbstractThis paper shows existence of approximate recursive equilibrium with minimal state space in an environment of incomplete markets. We prove that the approximate recursive equilibrium implements an approximate sequential equilibrium which is always close to a Magill and Quinzii equilibrium without short sales for arbitrarily small errors. This implies that the competitive equilibrium can be implemented by using forecast statistics with minimal state space provided that agents will reduce errors in their estimates in the long run. We have also developed an alternative algorithm to compute the approximate recursive equilibrium with incomplete markets and heterogeneous agents through a procedure of iterating functional equations and without using the first order conditions of optimality.
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Bibliographic InfoPaper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 737.
Date of creation: 26 Feb 2013
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-16 (All new papers)
- NEP-DGE-2013-03-16 (Dynamic General Equilibrium)
- NEP-MIC-2013-03-16 (Microeconomics)
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