Monte Carlo simulation of macroeconomic risk with a continuum agents: the general case
Hammond, Peter J. and Sun, Yeneng (2007) Monte Carlo simulation of macroeconomic risk with a continuum agents: the general case. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.803).
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In large random economies with heterogeneous agents, a standard stochastic framework presumes a random macro state, combined with idiosyncratic micro shocks. This can be formally represented by a ran-dom process consisting of a continuum of random variables that are conditionally independent given the macro state. However, this process satisfies a standard joint measurability condition only if there is essentially no idiosyncratic risk at all. Based on iteratively complete product measure spaces, we characterize the validity of the standard stochastic framework via Monte Carlo simulation as well as event-wise measurable conditional probabilities. These general characterizations also allow us to strengthen some earlier results related to exchangeability and independence.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory
Q Science > QA Mathematics
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Monte Carlo method, Convergence (Economics), Probabilities, Stochastic processes, Macroeconomics, Risk -- Mathematical models|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Official Date:||June 2007|
|Number of Pages:||29|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Realised As:||Hammond, P.J. and Sun, Y. (2008). Monte Carlo simulation of macroeconomic risk with a continuum of agents: the general case. Economic Theory, 36(2), pp. 303-325. http://wrap.warwick.ac.uk/id/eprint/29996|
 P. Billingsley, Probability and Measure, (3rd. edn.), John Wiley, New York, 1995.
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