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Numerical Simulation of Nonoptimal Dynamic Equilibrium ModelsZhigang FengPurdue University - Department of Economics; University of Zurich Jianjun MiaoBoston University - Department of Economics Adrian Peralta-AlvaFederal Reserve Bank of St. Louis Manuel SantosUniversity of Miami - School of Business Administration - Department of Economics May 31, 2011 Federal Reserve Bank of St. Louis Working Paper No. 2011-018B Abstract: In this paper we present a recursive method for the numerical simulation of nonoptimal dynamic equilibrium models. This method builds 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 various models with heterogeneous agents, incomplete financial markets, endogenous and exogenous borrowing constraints, taxes, and money.
Number of Pages in PDF File: 54 Keywords: Heterogeneous agents, taxes, externalities, financial frictions, competitive equilibrium, computation, simulation JEL Classification: C6, D5,E2 working papers seriesDate posted: April 15, 2009 ; Last revised: June 2, 2011Suggested CitationContact Information
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