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Non-parametric counterfactual analysis in dynamic general equilibrium

Author

Listed:
  • Felix Kubler

    (Department of Economics, University of Pennsylvania)

  • Karl Schmedders

    (Kellogg MEDS, Northwestern University)

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.

Suggested Citation

  • Felix Kubler & Karl Schmedders, 2007. "Non-parametric counterfactual analysis in dynamic general equilibrium," PIER Working Paper Archive 07-027, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Handle: RePEc:pen:papers:07-027
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    References listed on IDEAS

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    Cited by:

    1. Escanciano, Juan Carlos & Hoderlein, Stefan & Lewbel, Arthur & Linton, Oliver & Srisuma, Sorawoot, 2021. "Nonparametric Euler Equation Identification And Estimation," Econometric Theory, Cambridge University Press, vol. 37(5), pages 851-891, October.
    2. Felix Kubler & Larry Selden & Xiao Wei, 2014. "Asset Demand Based Tests of Expected Utility Maximization," American Economic Review, American Economic Association, vol. 104(11), pages 3459-3480, November.
    3. Andrés Carvajal, 2010. "The testable implications of competitive equilibrium in economies with externalities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 349-378, October.
    4. Felix Kubler & Karl Schmedders, 2010. "Non-parametric counterfactual analysis in dynamic general equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 181-200, October.

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    More about this item

    Keywords

    Dynamic general equilibrium; non-parametric analysis; observable restrictions;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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