ASSET PRICING IN DYNAMIC STOCHASTIC GENERAL EQUILIBRIUM MODELS WITH INDETERMINACY

2007 ◽  
Vol 12 (1) ◽  
pp. 50-71 ◽  
Author(s):  
NATALIA GERSHUN ◽  
SHARON G. HARRISON
Keyword(s):  
Asset Pricing ◽  
General Equilibrium ◽  
Returns To Scale ◽  
Dynamic Stochastic General Equilibrium ◽  
Increasing Returns ◽  
Dsge Model ◽  
Increasing Returns To Scale ◽  
Local Indeterminacy ◽  
Dynamic Stochastic ◽  
The One

We explore asset pricing in the context of the one-sector Benhabib-Farmer-Guo (BFG) model with increasing returns to scale in production and compare our results with financial implications of the standard dynamic stochastic general equilibrium (DSGE) model. Our main goal is to determine the effects of local indeterminacy and the presence of sunspot shocks on asset pricing. We find that the BFG model does not adequately represent key stylized facts of U.S. capital markets and does not improve on the asset-pricing results obtained in the standard DSGE model.

Macroeconomic Risks and Asset Pricing: Evidence from a Dynamic Stochastic General Equilibrium Model

2019 ◽  
Vol 65 (8) ◽  
pp. 3585-3604 ◽  
Author(s):  
Erica X. N. Li ◽  
Haitao Li ◽  
Shujing Wang ◽  
Cindy Yu
Keyword(s):  
Asset Pricing ◽  
General Equilibrium ◽  
Factor Model ◽  
Dynamic Stochastic General Equilibrium ◽  
Dsge Model ◽  
Cross Sectional ◽  
Dynamic Stochastic ◽  
Monetary Policy Shock ◽  
Macroeconomic Risks

We study the relation between macroeconomic fundamentals and asset pricing through the lens of a dynamic stochastic general equilibrium (DSGE) model. We provide full-information Bayesian estimation of the DSGE model using macroeconomic variables and extract the time series of four latent fundamental shocks of the model: neutral technology shock, investment-specific technological shock, monetary policy shock, and risk shock. Asset pricing tests show that our model-implied four-factor model can explain a number of prominent cross-sectional return spreads: size, book-to-market, investment, earnings, and long-term reversal. The investment-specific technological shock and risk shock play the most important role in explaining those return spreads. This paper was accepted by Neng Wang, finance.

scholarly journals A NOTE ON AN EXTENSION OF A CLASS OF SOLUTIONS TO DYNAMIC PROGRAMMING PROBLEMS ARISING IN ECONOMIC GROWTH

2011 ◽  
Vol 16 (3) ◽  
pp. 472-476 ◽  
Author(s):  
Jürgen Antony ◽  
Alfred Maußner
Keyword(s):  
Economic Growth ◽  
Dynamic Programming ◽  
General Equilibrium ◽  
Dynamic Stochastic General Equilibrium ◽  
Dsge Models ◽  
Dsge Model ◽  
Savings Rate ◽  
Dynamics And Control ◽  
Dynamic Stochastic ◽  
And Control

This note extends the findings of Benhabib and Rusticchini [Journal of Economic Dynamics and Control 18, 807–813 (1994)], who provide a class of dynamic stochastic general equilibrium (DSGE) models whose solution is characterized by a constant savings rate. We show that this class of models may be interpreted as a standard–representative agent DSGE model with costly adjustment of capital.

scholarly journals SUNSPOTS AND CREDIT FRICTIONS

2012 ◽  
Vol 17 (5) ◽  
pp. 1055-1069 ◽  
Author(s):  
Sharon G. Harrison ◽  
Mark Weder
Keyword(s):  
Business Cycles ◽  
General Equilibrium ◽  
Utility Function ◽  
Equilibrium Model ◽  
Returns To Scale ◽  
Increasing Returns ◽  
Increasing Returns To Scale ◽  
Collateral Constraints ◽  
Collateral Constraint ◽  
Credit Frictions

We examine a general equilibrium model with collateral constraints and increasing returns to scale in production. The utility function is nonseparable, with no income effect on the consumer's choice of leisure. Unlike this model without a collateral constraint, we find that indeterminacy of equilibria is possible. Hence, business cycles can be driven by self-fulfilling expectations. This is the case for more realistic parameterizations than in previous, similar models without these features.

scholarly journals Should the Dynamic Stochastic General Equilibrium (DSGE) Model be taught to Undergraduate Students of Economics?

PAPELES ◽  
2019 ◽  
Vol 10 (19) ◽  
Author(s):  
Álvaro Moreno Rivas
Keyword(s):  
General Equilibrium ◽  
Undergraduate Students ◽  
Dynamic Stochastic General Equilibrium ◽  
Dsge Model ◽  
Equilibrium Models ◽  
General Equilibrium Models ◽  
Undergraduate Economics ◽  
Dynamic Stochastic ◽  
Advanced Teaching

In this article we present the consequences of introducing the advanced teaching of the DSGE (Dynamic Stochastic General Equilibrium) models to undergraduate economics programs. This monoculture leads to the deepening of the discipline insularity, to the disappearance of the paradigmatic plurality inside the economics departments and to the silencing of critical voices. This process obeys Gresham’s Law of ideas: bad models displace good ideas.

Globalization, Consumer's Preference, and Welfare in India

2015 ◽  
pp. 109-133
Author(s):  
Koushik Das
Keyword(s):  
General Equilibrium ◽  
Market Structure ◽  
Computable General Equilibrium ◽  
Returns To Scale ◽  
Increasing Returns ◽  
Competitive Market ◽  
Fixed Costs ◽  
Increasing Returns To Scale ◽  
Cge Modelling ◽  
Economy Benefit

The purpose of the present chapter is to analyse general equilibrium effects of different trade liberalization policies for India under imperfectly competitive market structure. Since present day world trade is much akin towards the increasing returns to scale and market structure oriented industry behaviour, we have considered monopolistically competitive market structure for our analysis. Computable General Equilibrium (CGE) modelling has been applied as it seems to be relevant methodology for policy simulation. Consumer's love for variety and increasing returns to scale present in the sectors involving large fixed costs, are strong determinants of consumer's as well as producer's business confidence. Our study reveals that increased welfare gain due to trade and openness is not much larger as compared to standard perfect competition scenario as the scale economy benefit is predominant only in few sectors like capital goods industries and not prominently visible in large agricultural and informal manufacturing sectors.

Globalization, Consumer's Preference, and Welfare in India

2016 ◽  
pp. 288-311
Author(s):  
Koushik Das
Keyword(s):  
General Equilibrium ◽  
Market Structure ◽  
Computable General Equilibrium ◽  
Returns To Scale ◽  
Increasing Returns ◽  
Competitive Market ◽  
Fixed Costs ◽  
Increasing Returns To Scale ◽  
Cge Modelling ◽  
Economy Benefit

The purpose of the present chapter is to analyse general equilibrium effects of different trade liberalization policies for India under imperfectly competitive market structure. Since present day world trade is much akin towards the increasing returns to scale and market structure oriented industry behaviour, we have considered monopolistically competitive market structure for our analysis. Computable General Equilibrium (CGE) modelling has been applied as it seems to be relevant methodology for policy simulation. Consumer's love for variety and increasing returns to scale present in the sectors involving large fixed costs, are strong determinants of consumer's as well as producer's business confidence. Our study reveals that increased welfare gain due to trade and openness is not much larger as compared to standard perfect competition scenario as the scale economy benefit is predominant only in few sectors like capital goods industries and not prominently visible in large agricultural and informal manufacturing sectors.

scholarly journals Constructing a Small-Region DSGE Model

2013 ◽  
Vol 2013 ◽  
pp. 1-9
Author(s):  
Kenichi Tamegawa
Keyword(s):  
General Equilibrium ◽  
Interest Rates ◽  
Numerical Simulations ◽  
National Economy ◽  
Regional Economy ◽  
Small Region ◽  
Dynamic Stochastic General Equilibrium ◽  
Dsge Models ◽  
Dsge Model ◽  
Dynamic Stochastic

This paper constructs a tractable dynamic stochastic general equilibrium (DSGE) model of a regional economy that is considered small because it does not affect its national economy. To examine properties of our small-region DSGE model, we conduct several numerical simulations. Notably, fiscal expansion in our model is larger than that in standard DSGE models. This is because the increase in regional output does not raise interest rates, and this leads to the crowding-in effects of investment.

János Kornai’s Anti-Equilibrium, a harbinger of evolutionary economics

2013 ◽  
Vol 63 (3) ◽  
pp. 367-375 ◽  
Author(s):  
Peter Mihalyi
Keyword(s):  
Decision Making ◽  
General Equilibrium ◽  
Evolutionary Economics ◽  
Returns To Scale ◽  
Increasing Returns ◽  
Increasing Returns To Scale ◽  
Goods And Services ◽  
Production Processes ◽  
Non Linear

Anti-Equilibrium (1971) was well ahead of its time in emphasising that (i) economics should draw from biology, rather than physics, as its methodological underpinning; (ii) evolutionary logic requires a different type of decision-making in simple, routine matters, as opposed to large and important decisions; (iii) the most important production processes are non-linear, with increasing returns to scale being the rule, rather than the exception in modern capitalist economies and — in conclusion — that there is no such thing as general equilibrium. In modern societies, goods and services are either in shortage (Socialism) or in a state of oversupply (Capitalism). It is either a buyers’ market or sellers’ market.

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