Monte Carlo Simulation of Macroeconomic Risk with a Continuum Agents: The General Case

Peter Hammond and Yeneng Sun
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Yeneng Sun: Department of Economics, National University of Singapore

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: In large random economies with heterogeneous agents, a standard stochastic framework presumes a random macro state, combined with idiosyncratic micro shocks. This can be formally represented by a ran-dom process consisting of a continuum of random variables that are conditionally independent given the macro state. However, this process satisfies a standard joint measurability condition only if there is essentially no idiosyncratic risk at all. Based on iteratively complete product measure spaces, we characterize the validity of the standard stochastic framework via Monte Carlo simulation as well as event-wise measurable conditional probabilities. These general characterizations also allow us to strengthen some earlier results related to exchangeability and independence.

Keywords: large economy; event-wise measurable conditional probabilities; ex-changeability; conditional independence; Monte Carlo convergence; Monte Carlo-algebra; stochastic macro structure (search for similar items in EconPapers)
Pages: 29 pages
Date: 2007
New Economics Papers: this item is included in nep-cmp, nep-mac and nep-sea
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Citations: View citations in EconPapers (1)

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Journal Article: Monte Carlo simulation of macroeconomic risk with a continuum of agents: the general case (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:803

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