Journal article
Computing general equilibrium models with occupational choice and financial frictions
Journal of mathematical economics, Vol.44(7), pp.553-568
2008
DOI: 10.1016/j.jmateco.2006.03.004
Abstract
This paper establishes the existence of a stationary equilibrium and a procedure to compute solutions to a class of dynamic general equilibrium models with two important features. First, occupational choice is determined endogenously as a function of heterogeneous agent type, which is defined by an agent’s managerial ability and capital bequest. Heterogeneous ability is exogenous and independent across generations. In contrast, bequests link generations and the distribution of bequests evolves endogenously. Second, there is a financial market for capital loans with a deadweight intermediation cost and a repayment incentive constraint. The incentive constraint induces a non-convexity. The paper proves that the competitive equilibrium can be characterized by the bequest distribution and factor prices, and uses the monotone mixing condition to ensure that the stationary bequest distribution that arises from the agent’s optimal behavior across generations exists and is unique. The paper next constructs a direct, non-parametric approach to compute the stationary solution. The method reduces the domain of the policy function, thus reducing the computational complexity of the problem.
Details
- Title: Subtitle
- Computing general equilibrium models with occupational choice and financial frictions
- Creators
- António Antunes - Banco de Portugal, Departamento de Estudos Económicos, Faculdade de Economia, Universidade Nova de Lisboa, PortugalTiago Cavalcanti - Departamento de Economia, Universidade Federal de Pernambuco, INOVA, Faculdade de Economia, Universidade Nova de Lisboa, PortugalAnne Villamil - Department of Economics, University of Illinois at Urbana-Champaign, USA
- Resource Type
- Journal article
- Publication Details
- Journal of mathematical economics, Vol.44(7), pp.553-568
- DOI
- 10.1016/j.jmateco.2006.03.004
- ISSN
- 0304-4068
- eISSN
- 1873-1538
- Publisher
- Elsevier B.V
- Language
- English
- Date published
- 2008
- Academic Unit
- Economics
- Record Identifier
- 9984083818802771
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