Block-Recursive Equilibria in Heterogenous-Agent Models

Leo Kaas

No 8737, CESifo Working Paper Series from CESifo

Abstract: Equilibrium models with heterogeneous agents and aggregate uncertainty are difficult to analyze since policy functions and market prices depend on the cross-sectional distribution over agents’ state variables which is generally a high-dimensional object. This paper develops and applies a general model framework in which this problem does not arise. If sufficiently many agents enter the economy in every aggregate state of the world, policy functions and prices depend only on the exogenous aggregate state but are independent of the distribution over idiosyncratic states. The first part of this paper proves existence results for such block-recursive equilibria and derives an ergodic property which is useful for their computation. The second part applies this equilibrium concept to models of firm dynamics with competitive or frictional input markets and to incomplete-market economies with endogenous asset market participation.

Keywords: block-recursive equilibrium; dynamic general equilibrium; heterogeneous agents (search for similar items in EconPapers)
JEL-codes: C62 D50 E32 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-dge, nep-hme and nep-mac
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Journal Article: Block-recursive equilibria in heterogeneous-agent models (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8737

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