BEWLEY–HUGGETT–AIYAGARI MODELS: COMPUTATION, SIMULATION, AND UNIQUENESS OF GENERAL EQUILIBRIUM

Robert Kirkby

Macroeconomic Dynamics, 2019, vol. 23, issue 6, 2469-2508

Abstract: This paper provides conditions under which an algorithm for the computation and simulation of Bewley–Huggett–Aiyagari models, based on state-space discretization, will converge to all true solutions. These conditions are shown to be satisfied in two standard examples: the Aiyagari model and its extension to endogenous labor. Bewley–Huggett– Aiyagari models are general equilibrium models with incomplete markets and idiosyncratic, but no aggregate, shocks. The algorithm itself is based on discretization, while the theory importantly allows for making simulations using the approximate computational solution of the value function problem rather than the true model solution. The numerical results of applying the algorithm to both models are provided and investigated in terms of replication, revealing that the Aiyagari model overestimates the degree of precautionary savings in the high-risk-and-high-risk-aversion case. The results also show that both models almost certainly have a unique general equilibrium. Theoretically, the existence of equilibria was known, but uniqueness remained an open question.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

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:cup:macdyn:v:23:y:2019:i:06:p:2469-2508_00

Access Statistics for this article

More articles in Macroeconomic Dynamics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().