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Numerical Solution of Dynamic Non-Optimal Economies

  • Junjian Miao

    ()

    (Department of Economics, Boston University)

  • Manuel Santos

    ()

    (Department of Economics, W. P. Carey School of Business)

This paper presents a recursive method for the computation of sequential competitive equilibria in dynamic models with heterogeneous agents and market frictions. This computational method builds on a convergent operator defined over an expanded set of state variables for which a Markovian equilibrium solution is shown to exist. We apply this method to a stochastic growth economy and two financial economies.

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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2005-003.

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Length: 28 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:bos:wpaper:wp2005-003
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  1. Jose-Victor Rios-Rull, 1997. "Computation of equilibria in heterogeneous agent models," Staff Report 231, Federal Reserve Bank of Minneapolis.
  2. Jianjun Miao, 2004. "Competitive Equilibria of Economies with a Continuum of Consumers and Aggregate Shocks," CEMA Working Papers 460, China Economics and Management Academy, Central University of Finance and Economics.
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  4. Felix Kubler & Karl Schmedders, 2003. "Stationary Equilibria in Asset-Pricing Models with Incomplete Markets and Collateral," Econometrica, Econometric Society, vol. 71(6), pages 1767-1793, November.
  5. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer, vol. 6(1), pages 83-114, June.
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  7. Marcet, Albert & Singleton, Kenneth J., 1999. "Equilibrium Asset Prices And Savings Of Heterogeneous Agents In The Presence Of Incomplete Markets And Portfolio Constraints," Macroeconomic Dynamics, Cambridge University Press, vol. 3(02), pages 243-277, June.
  8. Krebs, Tom, 2004. "Non-existence of recursive equilibria on compact state spaces when markets are incomplete," Journal of Economic Theory, Elsevier, vol. 115(1), pages 134-150, March.
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  11. Kehoe, Timothy J & Levine, David K, 1985. "Comparative Statics and Perfect Foresight in Infinite Horizon Economies," Econometrica, Econometric Society, vol. 53(2), pages 433-53, March.
  12. N. Gregory Mankiw, 1986. "The Equity Premium and the Concentration of Aggregate Shocks," NBER Working Papers 1788, National Bureau of Economic Research, Inc.
  13. Imrohoruglu, Ayse, 1989. "Cost of Business Cycles with Indivisibilities and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1364-83, December.
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  17. Tom Krebs, 2002. "Asset Returns in an Endogenous Growth Model with Incomplete Markets," Working Papers 2002-18, Brown University, Department of Economics.
  18. Christopher Phelan & Ennio Stacchetti, 1999. "Sequential equilibria in a Ramsey tax model," Staff Report 258, Federal Reserve Bank of Minneapolis.
  19. Felix Kubler & Herakles Polemarchakis, 2004. "Stationary Markov equilibria for overlapping generations," Economic Theory, Springer, vol. 24(3), pages 623-643, October.
  20. Robert E. Lucas Jr., 2003. "Macroeconomic Priorities," American Economic Review, American Economic Association, vol. 93(1), pages 1-14, March.
  21. Blume, Lawrence E., 1982. "New techniques for the study of stochastic equilibrium processes," Journal of Mathematical Economics, Elsevier, vol. 9(1-2), pages 61-70, January.
  22. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2000. "Consumption and Risk Sharing Over the Life Cycle," NBER Working Papers 7995, National Bureau of Economic Research, Inc.
  23. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
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  25. Balasko, Yves & Shell, Karl, 1980. "The overlapping-generations model, I: The case of pure exchange without money," Journal of Economic Theory, Elsevier, vol. 23(3), pages 281-306, December.
  26. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
  27. John Geanakoplos & Michael Magill & Martine Quinzii, 2002. "Demography and the Long-run Predictability of the Stock Market," Cowles Foundation Discussion Papers 1380R, Cowles Foundation for Research in Economics, Yale University, revised Jul 2004.
  28. Gustavo Ventura, . "Flat Tax Reform: A Quantitative Exploration," Computing in Economics and Finance 1997 172, Society for Computational Economics.
  29. Greenwood Jeremy & Huffman Gregory W., 1995. "On the Existence of Nonoptimal Equilibria in Dynamic Stochastic Economies," Journal of Economic Theory, Elsevier, vol. 65(2), pages 611-623, April.
  30. Kubler, Felix & Schmedders, Karl, 2002. "Recursive Equilibria In Economies With Incomplete Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 6(02), pages 284-306, April.
  31. Coleman, Wilbur John, II, 1991. "Equilibrium in a Production Economy with an Income Tax," Econometrica, Econometric Society, vol. 59(4), pages 1091-1104, July.
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  36. repec:cup:macdyn:v:6:y:2002:i:2:p:284-306 is not listed on IDEAS
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  38. Santos, Manuel S., 2002. "On Non-existence of Markov Equilibria in Competitive-Market Economies," Journal of Economic Theory, Elsevier, vol. 105(1), pages 73-98, July.
  39. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
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