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Numerical Simulation of Nonoptimal Dynamic Equilibrium Models

  • Zhigang Feng


    (Department of Economics, University of Miami)

  • Jianjun Miao


    (Department of Economics, Boston University)

  • Adrian Peralta-Alva


    (Research Division, Federal Reserve Bank of Saint Louis)

  • Manual Santos


    (Department of Economics, University of Miami)

In this paper we present a recursive method for the computation of dynamic competitive equilibria in models with heterogeneous agents and market frictions. This method is based upon a convergent operator over an expanded set of state variables. The fixed point of this operator defines the set of all Markovian equilibria. We study approximation properties of the operator as well as the convergence of the moments of simulated sample paths. We apply our numerical algorithm to two growth models, an overlapping generations economy with money, and an asset pricing model with financial frictions.

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Paper provided by University of Miami, Department of Economics in its series Working Papers with number 0912.

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Length: 49 pages
Date of creation: 28 Feb 2009
Date of revision:
Publication status: Forthcoming: Under Review
Handle: RePEc:mia:wpaper:0912
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