Approximate Versus Exact Equilibria in Dynamic Economies

This paper provides a general framework for the quantitative analysis of stochastic dynamic models. We review convergence properties of some numerical algorithms and available methods to bound approximation errors. We then address convergence and accuracy properties of the simulated moments. Our purpose is to provide an asymptotic theory for the computation, simulation-based estimation, and testing of dynamic economies. The theoretical analysis is complemented with several illustrative examples. We study both optimal and non-optimal economies. Optimal economies generate smooth laws of motion defining Markov equilibria, and can be approximated by recursive methods with contractive properties. Non-optimal economies, however, lack existence of continuous Markov equilibria, and need to be computed by other algorithms with weaker approximation properties.

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Returns-to-scale and the equity premium puzzle

Dunbar

2013

Journal of Economic Dynamics and Control

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Approximate Versus Exact Equilibria in Dynamic Economies

Cited by 15 publications

References 19 publications

On Formulating and Solving Portfolio Decision and Asset Pricing Problems

On Formulating and Solving Portfolio Decision and Asset Pricing Problems

Analysis of Numerical Errors

Returns-to-scale and the equity premium puzzle

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