Approximate Generalizations and Applied Equilibrium Analysis

22 Pages Posted: 9 May 2005

See all articles by Felix Kubler

Felix Kubler

University of Zurich; Swiss Finance Institute

Date Written: 4/30/2005

Abstract

In this paper I derive conditions on the fundamentals of general equilibrium models that allow for a generalization of finitely many examples to statements about (infinite) classes of economies and I show how these approximate generalizations can be applied in computational experiments.

If there exist upper bounds on the number of connected components of one-dimensional linear subsets of the set of parameters for which a conjecture is true, one can conclude that it is correct for all parameter values in the class considered, except for a small residual set, once one has verified it for a predetermined finite set of points. I spell out assumptions on economic fundamentals which ensure that these bounds on the number of connected components exist, and that the residual set can be bounded from above.

I argue that utility- and production functions used in applied equilibrium analysis satisfy these conditions. Using the theoretical results, I show how computational experiments can be used to explore qualitative and quantitative implications of economic models. I give examples for actual upper bounds in realistically calibrated economies and discuss both deterministic and random algorithms for generalizing examples in these economies.

Keywords: o-minimal economies, computational general equilibrium

Suggested Citation

Kubler, Felix E., Approximate Generalizations and Applied Equilibrium Analysis (4/30/2005). Available at SSRN: https://ssrn.com/abstract=720421 or http://dx.doi.org/10.2139/ssrn.720421

Felix E. Kubler (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland