We develop a method that allows one to compute incomplete-market equilibria routinely for Markovian equilibria (when they exist). The main difficulty to be overcome arises from the set of state variables. There are, of course, exogenous state variables driving the economy but, in an incomplete...

We investigate the dynamics of prices, information and expectations in a competitive, noisy, dynamic asset pricing equilibrium model. We show that prices are farther away from (closer to) fundamentals compared with average expectations if and only if traders over- (under-) rely on public...

We present a network model of the interbank market in which optimizing risk averse banks lend to each other and invest in non-liquid assets. Market clearing takes place through a tâtonnement process which yields the equilibrium price, while traded quantities are determined by means of a...

With applied work in mind, we define an equilibrium notion for dynamic games with asymmetric information which does not require a specification for players' beliefs about their opponent types. This enables us to define equilibrium conditions which, at least in principal, are testable and can be...

In this paper we address the following question: To what extent is the hypothesis that voters vote sincerely testable or falsifiable? We show that using data only on how individuals vote in a single election, the hypothesis that voters vote sincerely is irrefutable, regardless of the number of...

This paper shows how changes in the volatility of the real interest rate at which small open emerging economies borrow have a quantitatively important effect on real variables like output, consumption, investment, and hours worked. To motivate our investigation, we document the strong evidence...

This paper shows that the R² and the standard error have fatal flaws and are inadequate as accuracy tests for models with heterogeneous agents and aggregate risk. Using data from a Krusell-Smith economy, I show that approximations for the law of motion of aggregate capital for which the true...

We present a framework for the applied analysis of dynamic games with asymmetric information. The framework consists of a definition of equilibrium, and an algorithm to compute it. Our definition of Applied Markov Perfect equilibrium is an extension of the definition of Markov Perfect...

We construct a method to solve models with heterogeneous agents and aggregate uncertainty that is simpler than existing algorithms; the aggregate law of motion is obtained neither by simulation nor by parameterization of the cross-sectional distribution, but by explicitly aggregating the...

This paper explores the equilibrium correspondence of a dynamic quality ladder model with entry and exit using the homotopy method. The homotopy method facilitates exploring the equilibrium correspondence in a systematic fashion; it is ideally suited for investigating the economic phenomena that...