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Solving General Equilibrium Models with Incomplete Markets and Many Assets

  • Martin D. D. Evans
  • Viktoria Hnatkovska

This paper presents a new numerical method for solving general equilibrium models with many assets. The method can be applied to models where there are heterogeneous agents, time-varying investment opportunity sets, and incomplete markets. It also can be used to study models where the equilibrium dynamics are non-stationary. We illustrate how the method is used by solving a one-- and two-sector versions of a two--country general equilibrium model with production. We check the accuracy of our method by comparing the numerical solution to the one-sector model against its known analytic properties. We then apply the method to the two-sector model where no analytic solution is available.

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File URL: http://www.nber.org/papers/t0318.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0318.

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Date of creation: Oct 2005
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Handle: RePEc:nbr:nberte:0318
Note: TWP
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