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Determinacy in Infinite Horizon Exchange Economies


  • Chris Shannon.


Infinite horizon economies and other models which naturally require an infinite number of commodities, such as product differentiation models and financial markets models with an infinite number of states, have become increasingly important for studying a wide array of economic problems. Although the existence and optimality of equilibria in such models have been studied in depth, almost nothing is known about qualitative properties of equilibria such as determinacy in general infinite horizon or infinite-dimensional economies. Moreover, resolving issues such as determinacy is crucial before such models can be used as the basis for any robust comparative statics analysis or for drawing any meaningful policy conclusions, as if equilibria are indeterminate, slight measurement error or variations in initial conditions can result in drastically different equilibria, and hence drastically different conclusions about the effects of changes in parameters or policies. This paper provides a framework for establishing the determinacy of equilibria in general infinite horizon models, establishes a meaningful notion of regular economy for such models, and gives sufficient conditions for regular infinite horizon economies to have a finite number of equilibria, each of which is locally stable with respect to perturbations in exogenous parameters, as well as for regular economies to be generic.

Suggested Citation

  • Chris Shannon., 1994. "Determinacy in Infinite Horizon Exchange Economies," Economics Working Papers 94-233, University of California at Berkeley.
  • Handle: RePEc:ucb:calbwp:94-233

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    References listed on IDEAS

    1. Hausman, Jerry A & Wise, David A, 1978. "A Conditional Probit Model for Qualitative Choice: Discrete Decisions Recognizing Interdependence and Heterogeneous Preferences," Econometrica, Econometric Society, vol. 46(2), pages 403-426, March.
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    4. Hajivassiliou, Vassilis & McFadden, Daniel & Ruud, Paul, 1996. "Simulation of multivariate normal rectangle probabilities and their derivatives theoretical and computational results," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 85-134.
    5. Daniel McFadden, 1977. "Modelling the Choice of Residential Location," Cowles Foundation Discussion Papers 477, Cowles Foundation for Research in Economics, Yale University.
    6. Bolduc, D., 1990. "Autoregressive Alternatives in the Multinomial Probit Model," Papers 9013, Laval - Recherche en Energie.
    7. Stern, Steven, 1992. "A Method for Smoothing Simulated Moments of Discrete Probabilities in Multinomial Probit Models," Econometrica, Econometric Society, vol. 60(4), pages 943-952, July.
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    Cited by:

    1. Balasko, Yves, 1997. "Equilibrium analysis of the infinite horizon model with smooth discounted utility functions," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 783-829, May.
    2. Chichilnisky, Graciela & Zhou, Yuqing, 1998. "Smooth infinite economies," Journal of Mathematical Economics, Elsevier, vol. 29(1), pages 27-42, January.

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