Markov Equilibria in Macroeconomics

Abstract

We review the recent literature in macroeconomics that analyses Markov equilibria in dynamic general equilibrium model. After defining the Markov equilibrium concept we first summarize what is known about the existence and uniqueness of such equilibria in models where sequential equilibria can be obtained by solving a suitable social planner problem. We then discuss the existence problems of Markov equilibria in models where equivalence of equilibrium allocations and solutions to social planner problems cannot be established and review techniques the literature has developed to deal with the existence problem, as well as recent applications of these techniques in macroeconomics.

Analysis of Numerical Errors

“…Following Krueger and Kubler (2008), a competitive equilibrium that can be generated by equilibrium functions of the form (18) will be called a simple Markov equilibrium. For frictionless economies the second welfare theorem applies-equilibrium allocations can be characterized as solutions to a planner's problem.…”