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Solving General Equilibrium Models with Incomplete Markets and Many Assets

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Abstract

This paper presents a new numerical method for solving general equilibrium models with many assets. The method can be applied to models where there are heterogeneous agents, time-varying investment opportunity sets, and incomplete markets. It also can be used to study models where the equilibrium dynamics are non-stationary. We illustrate how the method is used by solving a one— and two-sector versions of a two—country general equilibrium model with production. We check the accuracy of our method by comparing the numerical solution to the one-sector model against its known analytic properties. We then apply the method to the two-sector model where no analytic solution is available. Classification-JEL Codes: C68; D52; G11.

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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~05-05-18.

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Date of creation: 18 May 2005
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Handle: RePEc:geo:guwopa:gueconwpa~05-05-18

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Postal: Georgetown University Department of Economics Washington, DC 20057-1036
Phone: 202-687-6074
Fax: 202-687-6102
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Web page: http://econ.georgetown.edu/

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Postal: Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
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Web: http://econ.georgetown.edu/

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Keywords: Portfolio Choice; Perturbation Methods; Incomplete Markets; Asset Prices.;

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