Huggett Economies with Multiple Stationary Equilibria

Alexis Akira Toda

MPRA Paper from University Library of Munich, Germany

Abstract: I obtain a closed-form solution to a Huggett economy with CARA utility when the vector of individual state variables follows a VAR(1) process with an arbitrary shock distribution. The stationary equilibrium is unique if the income process is AR(1), but not necessarily so otherwise. With Gaussian shocks, I provide general sufficient conditions for the existence of at least three equilibria when the income process is either ARMA(1,1), AR(2), or has a persistent-transitory (PT) representation with negatively correlated shocks. The possibility of multiple equilibria calls for caution in comparative statics exercises and policy analyses using heterogeneous-agent models.

Keywords: CARA utility; income fluctuation problem; persistent-transitory representation (search for similar items in EconPapers)
JEL-codes: C62 D52 D58 E21 (search for similar items in EconPapers)
Date: 2017-03-13
New Economics Papers: this item is included in nep-dge, nep-mac, nep-ore and nep-upt
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Huggett economies with multiple stationary equilibria (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:78984

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