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Contribution Details

Type Book Chapter
Scope Discipline-based scholarship
Title Approximate versus exact equilibria in dynamic economies
Organization Unit
Authors
  • F Kubler
  • Karl Schmedders
Editors
  • D Brown
  • F Kubler
Item Subtype Original Work
Refereed Yes
Status Published in final form
Language
  • English
Booktitle Computational aspects of general equilibrium theory: refutable theories of value
Series Name Lecture Notes in Economics and Mathematical Systems
ISBN 978-3-540-76590-5
Number 604
Place of Publication Berlin
Publisher Springer
Page Range 135 - 164
Date 2008
Abstract Text This paper develops theoretical foundations for an error analysis of approximate equilibria in dynamic stochastic general equilibrium models with heterogeneous agents and incomplete financial markets. While there are several algorithms that compute prices and allocations for which agents’ first-order conditions are approximately satisfied (“approximate equilibria”), there are few results on how to interpret the errors in these candidate solutions and how to relate the computed allocations and prices to exact equilibrium allocations and prices. We give a simple example to illustrate that approximate equilibria might be very far from exact equilibria. We then interpret approximate equilibria as equilibria for close-by economies; that is, for economies with close-by individual endowments and preferences. We present an error analysis for two models that are commonly used in applications, an overlapping generations (OLG) model with stochastic production and an asset pricing model with infinitely lived agents.We provide sufficient conditions that ensure that approximate equilibria are close to exact equilibria of close-by economies. Numerical examples illustrate the analysis.
Official URL http://www.springer.com/economics/economic+theory/book/978-3-540-76590-5
Digital Object Identifier 10.1007/978-3-540-76591-2_10
Other Identification Number merlin-id:1076
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Additional Information This article first was published in Econometrica 73(4):1205–1235, July 2005 (you see that version in the added pdf).