Approximating suboptimal dynamic equilibria : an Euler equation approach Public Deposited

Creator Series Date Created
  • 1988-06
Abstract
  • This paper develops a new method for approximating dynamic competitive equilibria in economies in which competitive equilibrium is not necessarily Pareto optimal. The method involves finding approximate equilibrium policy functions by iterating on the stochastic Euler equations which characterize the economy's equilibrium. Two applications are presented: the stochastic growth model of Brock and Mirman (1971) modified to allow distortionary taxation, and a model of inflation and capital accumulation based on Stockman (1981). The computational speed and accuracy of this approach suggests that it may be a feasible method for studying suboptimal economies with large state spaces.

Subject (JEL) Date Modified
  • 08/21/2018
Corporate Author
  • Federal Reserve Bank of Minneapolis. Research Department.
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