Uniformly Self-Justified Equilibria

Felix Kubler and Simon Scheidegger

Papers from arXiv.org

Abstract: We consider dynamic stochastic economies with heterogeneous agents and introduce the concept of uniformly self-justified equilibria (USJE) -- temporary equilibria for which forecasts are best uniform approximations to a selection of the equilibrium correspondence. In a USJE, individuals' forecasting functions for the next period's endogenous variables are assumed to lie in a compact, finite-dimensional set of functions, and the forecasts constitute the best approximation within this set. We show that USJE always exist and develop a simple algorithm to compute them. Therefore, they are more tractable than rational expectations equilibria that do not always exist. As an application, we discuss a stochastic overlapping generations exchange economy and provide numerical examples to illustrate the concept of USJE and the computational method.

Date: 2021-12
New Economics Papers: this item is included in nep-dge
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Journal Article: Uniformly self-justified equilibria (2023)
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