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Monte Carlo simulation of macroeconomic risk with a continuum agents: the general case

By Peter J. Hammond and Yeneng Sun


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

Topics: HB, QA
Publisher: University of Warwick, Department of Economics
Year: 2007
OAI identifier: oai:wrap.warwick.ac.uk:1409

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