IDEAS home Printed from https://ideas.repec.org/a/cup/macdyn/v23y2019i06p2469-2508_00.html
   My bibliography  Save this article

Bewley–Huggett–Aiyagari Models: Computation, Simulation, And Uniqueness Of General Equilibrium

Author

Listed:
  • Kirkby, Robert

Abstract

This paper provides conditions under which an algorithm for the computation and simulation of Bewley–Huggett–Aiyagari models, based on state-space discretization, will converge to all true solutions. These conditions are shown to be satisfied in two standard examples: the Aiyagari model and its extension to endogenous labor. Bewley–Huggett– Aiyagari models are general equilibrium models with incomplete markets and idiosyncratic, but no aggregate, shocks. The algorithm itself is based on discretization, while the theory importantly allows for making simulations using the approximate computational solution of the value function problem rather than the true model solution. The numerical results of applying the algorithm to both models are provided and investigated in terms of replication, revealing that the Aiyagari model overestimates the degree of precautionary savings in the high-risk-and-high-risk-aversion case. The results also show that both models almost certainly have a unique general equilibrium. Theoretically, the existence of equilibria was known, but uniqueness remained an open question.

Suggested Citation

  • Kirkby, Robert, 2019. "Bewley–Huggett–Aiyagari Models: Computation, Simulation, And Uniqueness Of General Equilibrium," Macroeconomic Dynamics, Cambridge University Press, vol. 23(6), pages 2469-2508, September.
  • Handle: RePEc:cup:macdyn:v:23:y:2019:i:06:p:2469-2508_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S1365100517000761/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. David Staines, 2023. "Stochastic Equilibrium the Lucas Critique and Keynesian Economics," Papers 2312.16214, arXiv.org, revised Jun 2024.
    2. Robert Kirkby, 2023. "Quantitative Macroeconomics: Lessons Learned from Fourteen Replications," Computational Economics, Springer;Society for Computational Economics, vol. 61(2), pages 875-896, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:macdyn:v:23:y:2019:i:06:p:2469-2508_00. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/mdy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.