Granular Economies

30 Pages Posted: 8 Feb 2019 Last revised: 24 Dec 2019

See all articles by Jules H. van Binsbergen

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Christian C. Opp

University of Rochester - Simon Business School

Date Written: December 23, 2019

Abstract

We present a novel modeling approach for granular general equilibrium economies with persistent heterogeneity that yields exact global solutions. A key feature of our approach is the use of stochastic lumpy adjustment (SLA) technologies. The associated stochastic structure can capture any degree of granularity in adjustments of asset positions, and is thus more flexible than standard technologies. We show how SLA technologies can be employed in the context of both capital investment and the trading of financial assets. As our approach does not impose any restrictions on the shape of the state variable distribution, it can also be used to evaluate the conditions under which previous solution methods are likely to succeed. Obtaining exact solutions in these granular economies primarily involves inverting sparse matrices, a computational operation that can take full advantage of recent advances in high-performance parallel computing architectures.

Keywords: Stochastic lumpy adjustment, persistent heterogeneity, exact solutions, occasionally binding constraints, non-linearities, granularity

Suggested Citation

van Binsbergen, Jules H. and Opp, Christian C., Granular Economies (December 23, 2019). Available at SSRN: https://ssrn.com/abstract=3323516 or http://dx.doi.org/10.2139/ssrn.3323516

Jules H. Van Binsbergen

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen

Christian C. Opp (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

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