Recursive equilibrium in Krusell and Smith (1998)
Journal of Economic Theory, 2020, vol. 186, issue C
This paper uses the tools developed in the literature on dynamically incomplete markets with finite agents to study the large economy with a continuum of agents and both aggregate and idiosyncratic shocks in Krusell and Smith (1998). 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 simulating and calibrating 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; Heterogeneous Agents; Aggregate and Idiosyncratic Shocks; Recursive Equilibrium; Kakutani-Fan-Glicksberg Fixed Point Theorems; Stationarity and Ergodicity (search for similar items in EconPapers)
JEL-codes: D3 D5 E1 E2 E3 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:186:y:2020:i:c:s0022053119301255
Access Statistics for this article
Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell
More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Haili He ().