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Numerical Simulation of Nonoptimal Dynamic Equilibrium Models

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Zhigang Feng & Jianjun Miao & Adrian Peralta-Alva & Manual Santos, 2009. "Numerical Simulation of Nonoptimal Dynamic Equilibrium Models," Working Papers 0912, University of Miami, Department of Economics.
  • Handle: RePEc:mia:wpaper:0912
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    Keywords

    Heterogeneous agents; taxes; externalities; financial frictions; competitive equilibrium; computation; simulation;

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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