An earlier version of this article was circulated as “Existence and Computation of Markov Equilibria for Dynamic Nonoptimal Economies” by J. Miao and M. Santos, March 2005. We thank Chanont Banternghansa and Jan Auerbach for their computational assistance. We are grateful to two anonymous referees and an editor for very helpful comments. Z. Feng would like to acknowledge financial support from NCCR-FINRISK. The usual disclaimer applies.
NUMERICAL SIMULATION OF NONOPTIMAL DYNAMIC EQUILIBRIUM MODELS
Article first published online: 22 JAN 2014
© (2014) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
International Economic Review
Volume 55, Issue 1, pages 83–110, February 2014
How to Cite
FENG, Z., MIAO, J., PERALTA-ALVA, A. and SANTOS, M. S. (2014), NUMERICAL SIMULATION OF NONOPTIMAL DYNAMIC EQUILIBRIUM MODELS. International Economic Review, 55: 83–110. doi: 10.1111/iere.12042
- Issue published online: 22 JAN 2014
- Article first published online: 22 JAN 2014
- Manuscript Revised: DEC 2012
- Manuscript Received: JAN 2012
In this article, we propose a recursive equilibrium algorithm for the numerical simulation of nonoptimal dynamic economies. This algorithm 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. We also apply our recursive equilibrium algorithm to various models with heterogeneous agents, incomplete financial markets, endogenous and exogenous borrowing constraints, taxes, and money.