On Stationary Recursive Equilibria and Non-degenerate State Spaces: the Huggett Model
نویسندگان
چکیده
The seminal work of Huggett [“The risk-free rate in heterogeneous-agent incomplete-insurance economies”, Journal of Economic Dynamics and Control, 1993, 17(5-6), 953-969] showed that in a stationary recursive equilibrium, there exists a unique stationary distribution of agent types. However, the question remains open if an equilibrium’s individual state space might turn out to be such that either: (i) every agent’s common borrowing constraint binds forever, so that the distribution of agents will be degenerate; or (ii) that the individual state space might be unbounded. By invoking a simple comparative-static argument, we provide closure to this open question. We show that the equilibrium individual state space must be compact and that this set has positive measure. From Huggett’s result that there is a unique distribution of agents in a stationary equilibrium, our result implies that it must also be one that is nontrivial or nondegenerate.
منابع مشابه
On a Unique Nondegenerate Distribution of Agents in the Huggett Model
A theoretical curiosity remains in the Huggett [1993] model as to the possible existence of a unique and degenerate stationary distribution of agent types. This coincides with the possibility that an equilibrium individual state space may turn out to be trivial in the sense that every agent never escapes the binding common borrowing constraint. In this note, we extend and reinforce the proof of...
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