We propose a novel methodology for evaluating the accuracy of numerical solutions to dynamic economic models. Specifically, we construct a lower bound on the size of approximation errors. A small lower bound on errors is a necessary condition for accuracy: If a lower error bound is unacceptably...

The trading volume of long-lived securities with recursive payoffs, such as equity, is generically zero in infinite-horizon recursive pure exchange Lucas asset models with heterogeneous agents. In equilibrium, there is no portfolio rebalancing of such assets. More generally, the end-of-period...

The two-fund separation theorem from static porfolio analysis generalizes to dynamic Lucas-style asset model only when a consol is presemt. If all bonds have finite maturity and do not span the consol, then equilibrium will devitate, often significantly, from two-fund separation even with the...

Trading volume of infinitely lived securities, such as equity, is generically zero in Lucas asset pricing models with heterogeneous agents. More generally, the end-of-period portfolio of all securities is constant over time and states in the generic economy. General equilibrium restrictions rule...