Non-Parametric Counterfactual Analysis in Dynamic General Equilibrium

26 Pages Posted: 19 Sep 2007

See all articles by Felix Kubler

Felix Kubler

University of Zurich; Swiss Finance Institute

Karl Schmedders

University of Zurich

Multiple version iconThere are 2 versions of this paper

Date Written: September 17, 2007

Abstract

In this paper we examine non-parametric restrictions on counterfactual analysis in a simple dynamic stochastic general equilibrium model. Under the assumption of time-separable expected utility and complete markets all equilibria in this model are stationary, the Arrow-Debreu prices uniquely reveal the probabilities and discount factor and the equilibrium correspondence defined as the map from endowments to stationary (probability-free) state prices, is identical to the equilibrium correspondence in a standard Arrow-Debreu exchange economy with additively separable utility. We examine observable restriction on this correspondence and give necessary as well as sufficient conditions on profiles of individual endowments that ensure that associated equilibrium prices cannot be arbitrary. While often there are restrictions on possible price changes we also show that in most cases results from a single agent economy do not carry over to a setting with heterogeneous agents.

Keywords: Dynamic general equilibrium, non-parametric analysis, observable restrictions.

JEL Classification: D50, G10

Suggested Citation

Kubler, Felix E. and Schmedders, Karl, Non-Parametric Counterfactual Analysis in Dynamic General Equilibrium (September 17, 2007). PIER Working Paper No. 07-027. Available at SSRN: https://ssrn.com/abstract=1015525 or http://dx.doi.org/10.2139/ssrn.1015525

Felix E. Kubler (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Karl Schmedders

University of Zurich ( email )

Moussonstrasse 15
Zürich, CH-8044
Switzerland
+41 (0)44 634 3770 (Phone)

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