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NUMERICAL SIMULATION OF NONOPTIMAL DYNAMIC EQUILIBRIUM MODELS
Author(s) -
FENG ZHIGANG,
MIAO JIANJUN,
PERALTAALVA ADRIAN,
SANTOS MANUEL S.
Publication year - 2014
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12042
Subject(s) - operator (biology) , incomplete markets , set (abstract data type) , fixed point , mathematical economics , dynamic equilibrium , computer science , equilibrium point , mathematical optimization , markov process , markov perfect equilibrium , mathematics , economics , nash equilibrium , microeconomics , mathematical analysis , biochemistry , chemistry , statistics , repressor , transcription factor , programming language , gene , differential equation
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.