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Useful Results for the Simulation of Non-Optimal Economies with Heterogeneous Agents

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  • Damián Pierri

    (Universidad Carlos III Madrid & IIEP-BAIRES (UBA-CONICET))

Abstract

This paper deals with infinite horizon non-optimal economies with aggregate uncertainty and a finite number of heterogeneous agents. It derives sufficient conditions for the existence of a recursive structure, an ergodic, a stationary, and a non-stationary equilibria. It also gives an answer to the following question: is it possible to derive a general framework which guarantees that numerical simulations truly reflect the behavior of endogenous variables in the model? We provide sufficient conditions to give an affirmative answer to this question for endowment economies with incomplete markets and uncountable exogenous shocks. These conditions guarantee the ergodicity of the process and hold for a particular selection mechanism. For economies with finitely many shocks or for an arbitrary selection in economies with uncountable shocks, it is only possible to show that a computable, time independent and recursive representation generates a stationary Markov process. The results in this paper suggest that often a well-defined stochastic steady state in heterogenous agent models is sensitive to the initial conditions of the economy; a fact which imply that heterogeneity may have irreversible long-lasting effects.

Suggested Citation

  • Damián Pierri, 2021. "Useful Results for the Simulation of Non-Optimal Economies with Heterogeneous Agents," Working Papers 156, Universidad de San Andres, Departamento de Economia, revised Aug 2021.
    • Handle: RePEc:sad:wpaper:156
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    File URL: https://webacademicos.udesa.edu.ar/pub/econ/doc156.pdf
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    References listed on IDEAS

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    Cited by:

    1. Damián Pierri & Julián Martínez, 2020. "Accuracy in Recursive Minimal State Space Methods," Working Papers 147, Universidad de San Andres, Departamento de Economia, revised Aug 2020.

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    More about this item

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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