10 votes
Accepted

Applications/generalizations of a theorem of Debreu

This result is indeed a version of Berge's maximum theorem. If there is a continuous function $u:M\times H\to\mathbb{R}$ such that $x\preceq_e z$ if and only if $u(e,x)\leq u(e,z)$, one can derive the ...
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7 votes

Stimulus Effect of the Minimum Wage

From the Chicago Federal Reserve: Following a minimum wage hike, household income rises on average by about \$250 per quarter and spending by roughly \$700 per quarter for households with minimum ...
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  • 211
7 votes
Accepted

Perfect Competition, Zero profit rule and General Equilibrium

Parallel to Arrow and Debreu, there is the approach of Lionel McKenzie, in which no ownership is specified and all technology has constant returns to scale. In such a model, firms can make no profit. ...
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6 votes

What is the true source of dynamic(Pareto) inefficiency in OLG models?

Shell 1971 argues (in a ten page paper, so read it!) that the dynamic inefficiency stems from the double infinity of traders and goods, and not the dynamics. This allows us to do the Hilbert hotel ...
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6 votes
Accepted

Solving Kaplan and Menzio: Shopping Time

UPDATE After e-mail communication with one of the authors G.W.Kaplan, I recalibrated the value of the vacancy-posting cost parameter $k$ in order to obtain a cross of the two nullclines for $u=0.05$. ...
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6 votes
Accepted

Simulating Real Business Cycle

Explosiveness The paper contains an error, which causes the explosive dynamics in your simulation (although presumably the underlying computations in the paper were correct). The equilibrium ...
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  • 1,036
6 votes
Accepted

Do general equilibrium models include money?

While many general equilibrium models do not need to model money to approach the questions that they would like to answer, there are many models that do include money to address questions that need ...
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  • 1,553
6 votes
Accepted

"Competitive equilibrium" vs. "General equilibrium"

Competitive Equilibrium A competitive equilibrium ("Walrasian Equilibrium")'s defining characteristic is that it's competitive. It's about an equilibrium in which market forces (say, consumers, firms)...
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  • 10.4k
6 votes
Accepted

Are no arbitrage models and equilibrium models equivalent?

...no-arbitrage models (such as Black-Scholes and HJM) are equivalent to equilibrium models (such as CAPM or C-CAPM). Short Answer Yes, for models where asset prices are assumed to be Ito ...
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  • 2,559
6 votes

Aggregation of the closure property of a production set

Doing this more abstractly, let $Y_j\subseteq\mathbb{R}^n$ be a production set for $j=1,\ldots,m$ and let $$Y=Y_1+Y_2+\cdots+Y_N=\{y_1+y_2+\cdots+y_n|y_j\in Y_j, j=1,\ldots,m\}$$ be the aggregate ...
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6 votes

Proving local non-satiation in arbitrary metric space

First, you need a vector space in order for convex combinations to be well-defined. However, not every metric on a vector space works. Indeed, under the discrete metric, the result will trivially fail ...
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5 votes

What is the usefulness of approximating an optimal decision rule that close enough to steadystate in RBC model?

Higher order approximations such as those generated by Dynare may help a bit in terms of expanding the neighborhood in which the approximation works well, but the fundamental problem remains that the ...
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5 votes
Accepted

What is the usefulness of approximating an optimal decision rule that close enough to steadystate in RBC model?

Side note: This is one way of solving it - the alternative would be formulating a Bellman equation and iterating on that. If you assume that the real economy is on or sufficiently close to the steady ...
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  • 10.4k
5 votes

Simulating Real Business Cycle

Final NEWS March 20, 2015 : I have e-mailed prof. K. Salyer, one of the authors of the User Guide. In a repeated communication, he verified that both issues (see my answer below, as well as @ivansml ...
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5 votes

Does a General Equilibrium here require Pareto Optimality?

Competitive equilibrium is the price vector $(p_x, p_y, w =1, r)$ such that it solves the following system of equations: Demand for $X$ = Supply of $X$ Demand for $Y$ = Supply of $Y$ Demand for $L$ =...
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  • 4,417
5 votes
Accepted

Why are pricing charts treated as continuous series?

Inherently discrete variables (like "count data") have special properties, and it matters when it comes to econometric estimation. The usual criterion to treat a variable as continuous or discrete, ...
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5 votes
Accepted

Why is the production possibility set convex?

Perhaps you are confusing two things. If $Q_1$ and $Q_2$ denote the production of goods 1 and 2 in a single country and you are in the space defined by them given $L_1 + L_2 = L$ then it is indeed ...
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  • 26k
5 votes

What purpose does general equilibrium serve in practice?

Daron Acemoglu, in a paper called Theory, General Equilibrium and Political Economy in Development Economics, discusses the role of economic theory in empirical work in development economics, which ...
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  • 6,652
5 votes
Accepted

Properties of Financial Markets in Real Life

Equilibria: in the macroeconomic sense of aggregate equilibrium where all markets clear, markets are most likely never in any equilibrium but rather in constant flux between different equilibria, ...
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  • 41.5k
5 votes

Market with changing number of goods and services

I think the best candidate would be monopolistic competition as introduced by Dixit and Stiglitz (1977) Monopolistic Competition and Optimum Product Diversity, in which two models are introduced. ...
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  • 3,247
5 votes
Accepted

Walras Law in a production economy with fixed costs

Partial answer: for simplicity let $P_c =1$. The budget constraint: $c= wn + \Pi$ Simplify (plug in $\Pi$): $c= F(n)- fc$ Goods clearing: $c = F(n)$ The household's budget constraint is inconsistent w/...
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5 votes
Accepted

How do I find the socially optimum and equilibrium value?

You need to think about what the total costs are and what the marginal costs are. The social optimum is where marginal costs are equal to the outside option which is riding the bus. The story goes ...
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  • 3,247
4 votes

How can I draw an edgeworth box with 3 different goods?

I assume what you're asking based on your comments is: "How can I visualize indifference curves for 3 goods?" I can think of three options: 1) Use a tool like Matlab, or its open-source equivalent, ...
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  • 394
4 votes

What is the true source of dynamic(Pareto) inefficiency in OLG models?

There is an unpublished 1982 working paper by Donald Brown and John Geanakoplos, called “Understanding Overlapping Generations Economies as a Lack of Market Clearing at Infinity” (a scan used to be ...
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4 votes

Is the contract curve orthogonal to the priceline?

You write that the slope of one line is px/py and of another is -px/py. Take a piece of paper and draw the line y=2x and y=-2x are they orthogonal (answer: no)? In particular case the lines y=x and y=-...
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  • 286
4 votes

Looking for discussion on equilibrium vs dynamic models in econometrics

Economists (most of them) build their models assuming most of the time stochastic dynamic equilibrium. So Economics does not contrast "dynamic" with "equilibrium" - it synthesizes them. It is ...
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4 votes
Accepted

Recent economics theories that involve differential topology?

The main reason differential topology had some success in economics is that supplies powerful methods to show that something holds generically, mainly Sard's theorem and the transversality theorem. ...
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4 votes
Accepted

Is the convexity of production sets necessary for the welfare theorems?

Convexity of the production set is indeed not needed for the proof of the first welfare theorem but for the proof of the second welfare theorem. It is not a necessary condition though. It is ...
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4 votes

Say's law stated in terms of general equilibrium theory?

How about Walras's law? Walras's law is a principle in general equilibrium theory asserting that budget constraints imply that the values of excess demand (or, conversely, excess market supplies) ...
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  • 26k
4 votes
Accepted

Walras's Law V.S Say's Law- Is there a difference?

The way you have defined excess demand, it is only consumer excess demand. But Walras's law holds in any private ownership economy at all prices (at which demand and supply are well defined). Walras's ...
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