Monte Carlo Simulation of Macroeconomic Risk with a Continuum Agents : The General Case
AbstractIn large random economies with heterogeneous agents, a standard stochastic framework presumes a random macro state, combined with idiosyncratic micro shocks. This can be formally represented by a ran-dom process consisting of a continuum of random variables that are conditionally independent given the macro state. However, this process satisfies a standard joint measurability condition only if there is essentially no idiosyncratic risk at all. Based on iteratively complete product measure spaces, we characterize the validity of the standard stochastic framework via Monte Carlo simulation as well as event-wise measurable conditional probabilities. These general characterizations also allow us to strengthen some earlier results related to exchangeability and independence.
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 803.
Length: 29 pages
Date of creation: 2007
Date of revision:
large economy ; event-wise measurable conditional probabilities ; ex-changeability ; conditional independence ; Monte Carlo convergence ; Monte Carlo-algebra ; stochastic macro structure;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-07-07 (All new papers)
- NEP-CMP-2007-07-07 (Computational Economics)
- NEP-MAC-2007-07-07 (Macroeconomics)
- NEP-SEA-2007-07-07 (South East Asia)
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