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Non-parametric counterfactual analysis in dynamic general equilibrium

Author

Listed:
  • Felix KUBLER

    (University of Zurich and Swiss Finance Institute)

  • Karl SCHMEDDERS

    (University of Zurich and Swiss Finance Institute)

Abstract

In this paper we examine non-parametric restrictions on counterfactual analysis in a dynamic stochastic general equilibrium model. Under the assumption of time-separable expected utility and complete markets all equilibria in this model are stationary. The Arrow-Debreu prices uniquely reveal the probabilities and discount factor. The equilibrium correspondence, de¯ned as the map from endowments to stationary (probability-free) state prices, is identical to the equilibrium correspondence in a standard Arrow-Debreu exchange economy with additively separable utility. We examine possible restriction on this correspondence and give necessary as well as sufficient conditions on profiles of individual endowments that ensure that associated equilibrium prices cannot be arbitrary. Although restrictions on possible price changes often exist, we show that results from a representative-agent economy usually do not carry over to a setting with heterogeneous agents.

Suggested Citation

  • Felix KUBLER & Karl SCHMEDDERS, 2009. "Non-parametric counterfactual analysis in dynamic general equilibrium," Swiss Finance Institute Research Paper Series 09-05, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp0905
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    Cited by:

    1. Escanciano, Juan Carlos & Hoderlein, Stefan & Lewbel, Arthur & Linton, Oliver & Srisuma, Sorawoot, 2021. "Nonparametric Euler Equation Identification And Estimation," Econometric Theory, Cambridge University Press, vol. 37(5), pages 851-891, October.
    2. Felix Kubler & Larry Selden & Xiao Wei, 2014. "Asset Demand Based Tests of Expected Utility Maximization," American Economic Review, American Economic Association, vol. 104(11), pages 3459-3480, November.
    3. Andrés Carvajal, 2010. "The testable implications of competitive equilibrium in economies with externalities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 349-378, October.
    4. Felix Kubler & Karl Schmedders, 2010. "Non-parametric counterfactual analysis in dynamic general equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 181-200, October.
    5. Kübler, F. & Polemarchakis, H., 2024. "Identification in general equilibrium," Journal of Mathematical Economics, Elsevier, vol. 113(C).

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    Keywords

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    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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