Existence and Uniqueness of Equilibrium in Nonoptimal Unbounded Infinite Horizon Economies with Capital

Kevin Reffett and Olivier Morand ()

Working Papers from Department of Economics, W. P. Carey School of Business, Arizona State University

Abstract: In applied work in macroeconomics and finance, nonoptimal infinite horizon economies are often studied in which the state space is unbounded. Important examples of such economies are single sector growth models with production externalities, valued fiat money, monopolistic competition, and/or distortionary government taxation. Although sufficient conditions for existence and uniqueness of Markovian equilibrium are well known for the compact state space case, no similar sufficient conditions exist for unbounded growth. This paper provides such a set of sufficient conditions, and also presents a computational algorithm that will prove asymptotically consistent when computing Markovian equilibrium.

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