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Federal Reserve Bank of St. Louis
Working Papers
Numerical simulation of nonoptimal dynamic equilibrium models
Zhigang Feng
Jianjun Miao
Adrian Peralta-Alva
Manuel S. Santos
Abstract

In this paper we present a recursive method for the computation of dynamic competitive equilibria in models with heterogeneous agents and market frictions. This method is based on a convergent operator over an expanded set of state variables. The fixed point of this operator defines the set of all Markovian equilibria. We study approximation properties of the operator as well as the convergence of the moments of simulated sample paths. We apply our numerical algorithm to two growth models, an overlapping generations economy with money, and an asset pricing model with financial frictions.


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Zhigang Feng & Jianjun Miao & Adrian Peralta-Alva & Manuel S. Santos, Numerical simulation of nonoptimal dynamic equilibrium models, Federal Reserve Bank of St. Louis, Working Papers 2009-018, 2009.
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Keywords: Econometric models
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