Recursive Equilibrium in Krusell and Smith (1998)

Dan Cao ()
Additional contact information
Dan Cao: Department of Economics, Georgetown University, http://faculty.georgetown.edu/dc448/

Working Papers from Georgetown University, Department of Economics

Abstract: This paper combines the tools developed in two important and independent literatures - one on large economies started with Aumann (1964) and the other on dynamically incomplete markets, notably Duffie et al (1994)- to study Krusell and Smith’s incomplete markets economy with both idiosyncratic and aggregate shocks. It establishes the existence of sequential competitive equilibrium, generalized recursive equilibrium, recursive equilibrium with an extended-state space, and characterizes several important properties of the equilibrium variables. The equilibrium process admits an ergodic measure, which enables the application of the ergodic theorem for the simulation and calibration of the model. Without aggregate shocks, the existence and some characterization results carry over to economies with only idiosyncratic shocks such as Huggett (1997)’s economy. However, the existence of recursive equilibrium with the natural minimal state space in Krusell and Smith's economy remains elusive, as in finite-agent incomplete markets economies.

Keywords: Incomplete Markets; Large Economies; Aggregate and Idiosyncratic Shocks; Recursive Equilibrium Existence; Kakutani-Glicksberg-Fan Fixed Point Theorem; Ergodicity (search for similar items in EconPapers)
JEL-codes: C62 C63 C68 D52 D91 E13 E21 E32 (search for similar items in EconPapers)
Pages: 100
Date: 2018-09-14
New Economics Papers: this item is included in nep-dge and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2863349 Full text (application/pdf)
None

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:geo:guwopa:gueconwpa~18-18-13

Ordering information: This working paper can be ordered from
Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
http://econ.georgetown.edu/

Access Statistics for this paper

More papers in Working Papers from Georgetown University, Department of Economics Georgetown University Department of Economics Washington, DC 20057-1036.
Bibliographic data for series maintained by Marcia Suss ( this e-mail address is bad, please contact ).