We construct a dynamic general equilibrium model of tax evasion where agents choose to report some of their income. Unreported income requires using a payment method that avoids recordkeeping in some markets—cash. Trade using cash to avoid taxes is the ‘shadow economy’ in our model. We...

Our work has been concerned with the numerical simulation of dynamic economies with heterogeneous agents and economic distortions. Recent research has drawn attention to inherent difficulties in the computation of competitive equilibria for these economies: A continuous Markovian solution may...

Search models of monetary exchange commonly assume that terms of trade in anonymous markets are determined via Nash bargaining, which generally causes monetary equilibrium to be inefficient. Bargaining frictions add to the classical intertemporal distortion present in most monetary models,...

The market value of U.S. corporations was nearly halved during the oil crisis of 1973-74. In this paper, we investigate the hypothesis that the sharp rise in energy costs during this period resulted in the obsolescence of firms' existing capital and reduced their market value. To quantify this...

This paper is concerned with accuracy properties of simulations of approximate solutions for stochastic dynamic models. Our analysis rests upon a continuity property of invariant distributions and a generalized law of large numbers. We then show that the statistics generated by any sufficiently...

This paper provides a general framework for the quantitative analysis of stochastic dynamic models. We review the convergence properties of some numerical algorithms and available methods to bound approximation errors. We then address the convergence and accuracy properties of the simulated...