This paper develops theoretical foundations for the computation of competitive equilibria in dynamic stochastic general equilibrium models with heterogeneous agents and incomplete financial markets. While there are several algorithms which compute prices and allocations for which agents' first order conditions are approximately satisfied (`approximate equilibria'), there are few results on how to interpret the errors in these candidate solutions and how to relate the computed allocations and prices to exact equilibrium allocations and prices. Following Postlewaite and Schmeidler (1981) we interpret approximate equilibria as equilibria for close-by economies, i.e.\ for economies with close-by individual endowments and preferences. In order to conduct an error analysis in dynamic stochastic general equilibrium models, we define an $\epsilon $-equilibrium to be a set of endogenous variables which consists of the finite support of an approximate equilibrium process. Given an $\epsilon $-equilibrium we show how to derive bounds on perturbations in individual endowments and preferences which ensure that the $\epsilon $-equilibrium approximates an exact equilibrium for the perturbed economy.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Felix Kubler & Karl Schmedders, 2003.
"Approximate Versus Exact Equilibria,"
Discussion Papers
1382, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Find related papers by JEL classification: C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
This paper has been announced in the following NEP Reports:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: