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Non-Parametric Counterfactual Analysis in Dynamic General Equilibrium, Economic Theory

Abstract

In this paper we examine non-parametric restrictions on counterfactual analysis in a simple 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 and 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 observable 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. While often there are restrictions on possible price changes we also show that in most cases results from a single agent economy do not carry over to a setting with heterogeneous agents.

Type

Article

Author(s)

Felix Kubler, Karl Schmedders

Date Published

2010

Citations

Kubler, Felix, and Karl Schmedders. 2010. Non-Parametric Counterfactual Analysis in Dynamic General Equilibrium. Economic Theory. 45

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