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Robust Comparative Statics in Large Dynamic Economies

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  • Daron Acemoglu
  • Martin Kaae Jensen

Abstract

We consider infinite horizon economies populated by a continuum of agents who are subject to idiosyncratic shocks. This framework contains models of saving and capital accumulation with incomplete markets in the spirit of works by Bewley, Aiyagari, and Huggett, and models of entry, exit and industry dynamics in the spirit of Hopenhayn's work as special cases. Robust and easy-to-apply comparative statics results are established with respect to exogenous parameters as well as various kinds of changes in the Markov processes governing the law of motion of the idiosyncratic shocks. These results complement the existing literature which uses simulations and numerical analysis to study this class of models and are illustrated using a number of examples.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18178.

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Date of creation: Jun 2012
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Handle: RePEc:nbr:nberwo:18178

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  1. Daron Acemoglu & Martin Kaae Jensen, 2012. "Robust Comparative Statics in Large Dynamic Economies," NBER Working Papers 18178, National Bureau of Economic Research, Inc.
  2. Daron Acemoglu & Robert Shimer, 1998. "Holdups and Efficiency with Search Frictions," Working papers 98-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
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  23. Milgrom, Paul & Roberts, John, 1994. "Comparing Equilibria," American Economic Review, American Economic Association, vol. 84(3), pages 441-59, June.
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  26. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
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  28. Martin Kaae Jensen, 2012. "Distributional Comparative Statics," Discussion Papers 12-08, Department of Economics, University of Birmingham.
  29. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
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Cited by:
  1. Daron Acemoglu & Martin Kaae Jensen, 2012. "Robust Comparative Statics in Large Dynamic Economies," NBER Working Papers 18178, National Bureau of Economic Research, Inc.
  2. Jain, Sanjay & Majumdar, Sumon & Mukand, Sharun, 2013. "Walk the Line: Conflict, State Capacity and the Political Dynamics of Reform," CAGE Online Working Paper Series 156, Competitive Advantage in the Global Economy (CAGE).
  3. repec:cge:warwcg:155 is not listed on IDEAS
  4. Sanjay Jain & Sumon Majumdar & Sharun Mukand, 2014. "Walk the Line: Conflict, State Capacity and the Political Dynamics of Reform," CESifo Working Paper Series 4648, CESifo Group Munich.
  5. Martin Kaae Jensen, 2012. "Distributional Comparative Statics," Discussion Papers 12-08, Department of Economics, University of Birmingham.
  6. Acikgoz, Omer, 2013. "Transitional Dynamics and Long-run Optimal Taxation Under Incomplete Markets," MPRA Paper 50160, University Library of Munich, Germany.

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