Non-parametric counterfactual analysis in dynamic general equilibrium

Felix Kubler, Karl H Schmedders*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)181-200
Number of pages20
JournalEconomic Theory
Volume45
Issue number1
DOIs
StatePublished - Jan 1 2010

Keywords

  • Dynamic general equilibrium
  • Non-parametric analysis
  • Observable restrictions

ASJC Scopus subject areas

  • Economics and Econometrics

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