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Block-Recursive Equilibria in Heterogenous-Agent Models

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  • Leo Kaas

Abstract

Equilibrium models with heterogeneous agents and aggregate uncertainty are difficult to analyze since policy functions and market prices depend on the cross-sectional distribution over agents’ state variables which is generally a high-dimensional object. This paper develops and applies a general model framework in which this problem does not arise. If sufficiently many agents enter the economy in every aggregate state of the world, policy functions and prices depend only on the exogenous aggregate state but are independent of the distribution over idiosyncratic states. The first part of this paper proves existence results for such block-recursive equilibria and derives an ergodic property which is useful for their computation. The second part applies this equilibrium concept to models of firm dynamics with competitive or frictional input markets and to incomplete-market economies with endogenous asset market participation.

Suggested Citation

  • Leo Kaas, 2020. "Block-Recursive Equilibria in Heterogenous-Agent Models," CESifo Working Paper Series 8737, CESifo.
    • Handle: RePEc:ces:ceswps:_8737
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    References listed on IDEAS

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    More about this item

    Keywords

    block-recursive equilibrium; dynamic general equilibrium; heterogeneous agents;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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