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Near-Rational Equilibria in Heterogeneous-Agent Models: A Verification Method / Leonid Kogan, Indrajit Mitra.
- Format:
- Book
- Author/Creator:
- Kogan, Leonid.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w30111.
- NBER working paper series no. w30111
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2022.
- Summary:
- We propose a general simulation-based procedure for estimating quality of approximate policies in heterogeneous-agent equilibrium models, which allows to verify that such approximate solutions describe a near-rational equilibrium. Our procedure endows agents with superior knowledge of the future path of the economy, while imposing a suitable penalty for such foresight. The relaxed problem is more tractable than the original, and results in an upper bound on agents' welfare. Our method is general, straightforward to implement, and can be used in conjunction with various solution algorithms. We illustrate our approach in two applications: the incomplete-markets model of Krusell and Smith (1998) and the heterogeneous firm model of Khan and Thomas (2008).
- Notes:
- Print version record
- June 2022.
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