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Non-parametric counterfactual analysis in dynamic general equilibrium


Kubler, Felix; Schmedders, Karl (2010). Non-parametric counterfactual analysis in dynamic general equilibrium. Economic Theory, 45(1-2):181-200.

Abstract

In this paper, we examine non-parametric restrictions on counterfactual analysis in a dynamic stochastic general equilibrium model. Under the assumption of time-separable expected utility and complete markets all equilibria in this model are stationary. The Arrow-Debreu prices uniquely reveal the probabilities and discount factor. The equilibrium correspondence, defined as the map from endowments to stationary (probability-free) state prices, is identical to the equilibrium correspondence in a standard Arrow-Debreu exchange economy with additively separable utility. We examine possible restriction on this correspondence and give necessary as well as sufficient conditions on profiles of individual endowments that ensure that associated equilibrium prices cannot be arbitrary. Although restrictions on possible price changes often exist, we show that results from a representative-agent economy usually do not carry over to a setting with heterogeneous agents.

In this paper, we examine non-parametric restrictions on counterfactual analysis in a dynamic stochastic general equilibrium model. Under the assumption of time-separable expected utility and complete markets all equilibria in this model are stationary. The Arrow-Debreu prices uniquely reveal the probabilities and discount factor. The equilibrium correspondence, defined as the map from endowments to stationary (probability-free) state prices, is identical to the equilibrium correspondence in a standard Arrow-Debreu exchange economy with additively separable utility. We examine possible restriction on this correspondence and give necessary as well as sufficient conditions on profiles of individual endowments that ensure that associated equilibrium prices cannot be arbitrary. Although restrictions on possible price changes often exist, we show that results from a representative-agent economy usually do not carry over to a setting with heterogeneous agents.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Dynamic general equilibrium - Non-parametric analysis - Observable restriction
Language:English
Date:2010
Deposited On:21 Jan 2010 21:40
Last Modified:05 Apr 2016 13:44
Publisher:Springer
ISSN:0938-2259
Publisher DOI:https://doi.org/10.1007/s00199-009-0475-8
Permanent URL: https://doi.org/10.5167/uzh-27210

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