Non-Parametric Counterfactual Analysis in Dynamic General Equilibrium

26 Pages Posted: 30 Mar 2009

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: February 23, 2009

Abstract

In this paper we examine non-parametric restrictions on counterfactual analysis in a 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. 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 possible 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. Although restrictions on possible price changes often exist, we show that results from a representative-agent economy usually 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 (February 23, 2009). Swiss Finance Institute Research Paper No. 09-05. Available at SSRN: https://ssrn.com/abstract=1368679 or http://dx.doi.org/10.2139/ssrn.1368679

Felix E. Kubler

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 (Contact Author)

University of Zurich ( email )

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

Register to save articles to
your library

Register

Paper statistics

Downloads
72
Abstract Views
1,056
rank
219,453
PlumX Metrics