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Non-parametric counterfactual analysis in dynamic general equilibrium

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Author Info
Felix Kubler () (Department of Economics, University of Pennsylvania)
Karl Schmedders () (Kellogg MEDS, Northwestern University)

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Abstract

In this paper we examine non-parametric restrictions on counterfactual analysis in a simple dynamic stochastic general equilibrium model. Under the assumption of time-separable expected utility and complete markets all equilibria in this model are stationary, the Arrow-Debreu prices uniquely reveal the probabilities and discount factor and the equilibrium correspondence defined as the map from endowments to stationary (probability-free) state prices, is identical to the equilibrium correspondence in a standard Arrow-Debreu exchange economy with additively separable utility. We examine observable restriction on this correspondence and give necessary as well as sufficient conditions on profiles of individual endowments that ensure that associated equilibrium prices cannot be arbitrary. While often there are restrictions on possible price changes we also show that in most cases results from a single agent economy do not carry over to a setting with heterogeneous agents.

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Publisher Info
Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 07-027.

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Length: 26 pages
Date of creation: 17 Sep 2007
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Handle: RePEc:pen:papers:07-027

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Related research
Keywords: Dynamic general equilibrium non-parametric analysis observable restrictions

Find related papers by JEL classification:
D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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  1. Mas-Colell, Andreu, 1977. "On the equilibrium price set of an exchange economy," Journal of Mathematical Economics, Elsevier, vol. 4(2), pages 117-126, August. [Downloadable!] (restricted)
  2. Kubler, Felix, 2003. "Observable restrictions of general equilibrium models with financial markets," Journal of Economic Theory, Elsevier, vol. 110(1), pages 137-153, May. [Downloadable!] (restricted)
  3. Bewley, Truman F., 1972. "Existence of equilibria in economies with infinitely many commodities," Journal of Economic Theory, Elsevier, vol. 4(3), pages 514-540, June. [Downloadable!] (restricted)
  4. Constantinides, George M, 1982. "Intertemporal Asset Pricing with Heterogeneous Consumers and without Demand Aggregation," Journal of Business, University of Chicago Press, vol. 55(2), pages 253-67, April. [Downloadable!] (restricted)
  5. Yves Balasko & Mich Tvede, . "Equilibrium Data Sets and Compatible Utility Rankings," Discussion Papers 05-23, University of Copenhagen. Department of Economics, revised Nov 2005. [Downloadable!]
  6. Danthine, Jean-Pierre & Donaldson, John B. & Giannikos, Christos & Guirguis, Hany, 2004. "On the consequences of state dependent preferences for the pricing of financial assets," Finance Research Letters, Elsevier, vol. 1(3), pages 143-153, September. [Downloadable!] (restricted)
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  7. Varian, Hal R, 1983. "Non-Parametric Tests of Consumer Behaviour," Review of Economic Studies, Blackwell Publishing, vol. 50(1), pages 99-110, January. [Downloadable!] (restricted)
  8. Angelo Melino & Alan X. Yang, 2003. "State Dependent Preferences Can Explain the Equity Premium Puzzle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 806-830, October. [Downloadable!] (restricted)
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  9. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November. [Downloadable!] (restricted)
  10. Brown, Donald J & Matzkin, Rosa L, 1996. "Testable Restrictions on the Equilibrium Manifold," Econometrica, Econometric Society, vol. 64(6), pages 1249-62, November. [Downloadable!] (restricted)
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  11. Felix Kubler & Karl Schmedders, 2003. "Generic inefficiency of equilibria in the general equilibrium model with incomplete asset markets and infinite time," Economic Theory, Springer, vol. 22(1), pages 1-15, 08. [Downloadable!] (restricted)
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