Numerical Simulation of Nonoptimal Dynamic Equilibrium Models
Federal Reserve Bank of St. Louis Working Paper No. 2011-018B
54 Pages Posted: 15 Apr 2009 Last revised: 2 Jun 2011
Date Written: May 31, 2011
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.
Keywords: Heterogeneous agents, taxes, externalities, financial frictions, competitive equilibrium, computation, simulation
JEL Classification: C6, D5,E2
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