RECURSIVE EQUILIBRIA IN AN AIYAGARI-STYLE ECONOMY WITH PERMANENT INCOME SHOCKS

• 成果类型: Article
• 署名作者: Kuhn, Moritz
• 署名单位: University of Bonn
• 刊物名称: INTERNATIONAL ECONOMIC REVIEW
• ISSN/ISSBN: 0020-6598
• DOI: 10.1111/iere.12018
• 发表日期: 2013
• 页码: 807-835
• 关键词: risk; insurance

摘要

We prove existence of a recursive competitive equilibrium (RCE) for an Aiyagari-style economy with permanent income shocks and derive important economic implications. We show that there exist equilibria where borrowing constraints are never binding and establish a nontrivial lower bound on the equilibrium interest rate. These results imply distinct consumption dynamics compared to existing studies. We present a new approach to solve the agent's problem that uses lattices of consumption functions to deal with permanent income shocks and an unbounded utility function. The approach provides a theoretical foundation for convergence of the time iteration algorithm widely used in applied work.