Approximating suboptimal dynamic equilibria : an Euler equation approach Pubblico Deposited

Alpha creator Series Subject 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.
Corporate name
  • Federal Reserve Bank of Minneapolis. Research Department.
Date created
  • 1988-06
Date modified
  • 08/21/2018
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