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| Type | Conference Presentation |
| Scope | Discipline-based scholarship |
| Title | Applying Negishi's method to stochastic models with overlapping generations |
| Organization Unit | |
| Authors |
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| Presentation Type | paper |
| Item Subtype | Original Work |
| Refereed | No |
| Status | Published in final form |
| Event Title | 9th Annual Cowles Conference on General Equilibrium and its applications |
| Event Type | conference |
| Event Location | New Haven US |
| Event Start Date | April 26 - 2013 |
| Event End Date | April 28 - 2013 |
| Abstract Text | In this paper we develop a Negishi approach to characterize recursive equilibria in stochastic models with overlapping generations. When competitive equilibria are Pareto-optimal, using Negishi-weights as a co-state variable has three major computational advantages over the standard approach of using the natural state: First, the endogenous state space is a unit simplex and thus easy to handle. Second, the number of unknown functions characterizing equilibrium dynamics is orders of magnitude smaller. Third, approximation errors have a compelling economic interpretation. Our main contribution is to show that the Negishi approach extends naturally to models with borrowing-constraints and incomplete financial markets where the welfare theorems fail. Many of the computational advantages carry over to this setting. We derive sufficient conditions for the existence of Markov equilibria in the complete markets model as well as for models with incomplete markets and borrowing constraints. |
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