Estimating Dynamic Equilibrium Economies: Linear versus Nonlinear Likelihood

On the Mechanics of Forming and Estimating Dynamic Linear Economies

This paper catalogues formulas that are useful for estimating dynamic linear economic models. We describe algorithms for computing equilibria of an economic model and for recursively computing a Gaussian likelihood function and its gradient with respect to parameters. We apply these methods to several example economies. Lars Peter Hansen and Thomas J. Sargent acknowledge nancial support from th...

Equilibrium Analysis of Dynamic Economies Preliminary Version

We study equilibrium properties of discrete-time, infinite-horizon smooth economies whose equilibria can be represented as a sequence of interrelated equations, and provide sufficient conditions to guarantee existence, (generic) determinacy and (generic) robustness of equilibria. Our approach exploits the sequential nature of a dynamic economy. An equilibrium is represented by a sequence of end...

Recursive Models of Dynamic Linear Economies Recursive Models of Dynamic Linear Economies

A Likelihood Approach to Estimating Market Equilibrium Models

This paper develops a new likelihood-based method for the simultaneous estimation of structural demand-and-supply models for markets with differentiated products. We specify an individual-level discrete choice model of demand and derive the supply side assuming manufacturers compete in prices. The proposed estimation method considers price endogeneity through simultaneous estimation of demand a...

Dynamic Suboptimality of Competitive Equilibrium in Multiperiod Overlapping Generations Economies

The question we ask is: within the set of a three-period-lived OLG economies with a stochastic endowment process, a stochastic dividend process, and sequentially incomplete complete markets, under what set of conditions may a set of government transfers dynamically Pareto dominate the laissez faire equilibrium? We start by characterizing perfect risk sharing and find that it implies a strongly ...