General equilibrium

Unlike partial equilibrium analysis which study the equilibrium of a particular market under the clause "ceteris paribus" that revenues and prices on the other markets stay approximately unaffected, the ambition of a general equilibrium model is to analyze the simultaneous equilibrium in all markets of a competitive economy. Definition of the abstract model, some of its basic results and insights are presented. The important issues of uniqueness and local uniqueness of equilibrium are sketched ; they are the condition for a predictive power of the theory and its ability to allow for statics comparisons. Finally, we review the main extensions of the general equilibrium model. Besides the natural extensions to infinitely many commodities and to a continuum of agents, some examples show how economic theory can accommodate the main ideas in order to study some contexts which were not thought of by the initial model.Commodity space, price space, exchange economy, production economy, feasible allocations, equilibrium, quasi-equilibrium, Pareto optimum, core, edgeworth equilibrium allocutions, time and uncertainty, continuum economies, non-convexities, public goods, incomplete markets.

General equilibrium programming

Equilibrium Theory;Algorithm

Equilibrium unemployment in a general equilibrium model with taxes

The ratio of unemployed to vacancies has risen sharply in the UK after the recession of 2008/09. How harmful is it for the long run growth, equity and efficiency and what sorts of long run cycles does it generate in the economy? With a dynamic computable general equilibrium model with Pissarides (1979, 2011) and Mortensen and Pissarides (1994) type equilibrium unemployment, impacts of tax-transfer programmes are assessed for the UK. The model contains more desirable structure of households and production sectors and includes more type of shocks in preferences, technology, trade and policy instruments for stochastic analyses than is usual in DSGE models. It assesses growth and cycles as well as equity and efficiency effects of policies simultaneously. Improvements in the matching technology lowers the equilibrium unemployment and raises the long-run growth rate and life time utilities of households and reduces long run cycles. Matching could be made more efficient by influencing the relative price system by optimal set of tax and transfer instruments. Better matching techniques can make transition of job-seekers to employment more efficient so that the intertemporal labour-leisure and consumption-saving decisions have greater impacts on growth and redistribution reducing fluctuations in the economy

Quantity Constrained General Equilibrium

In a standard general equilibrium model it is assumed that there are no price restrictions and that prices adjust infinitely fast to their equilibrium values.In case of price restrictions a general equilibrium may not exist and rationing on net demands or supplies is needed to clear the markets.In the mid 1970s it was shown that in case of upper and lower bound restrictions on the prices there exists a quantity constrained equilibrium at which not both demand and supply of a good are rationed simultaneously and there is rationing on the net supply or net demand of a good only if the price of that good is on its lower or upper bound, respectively.For an arbitrary set of admissible prices it was recently proposed to let the rationing schemes be determined by the components of a vector being a direction in which the prices are restricted to move.When the set of restricted prices is convex and compact, it was shown that there exists a connected set of such quantity constrained equilibria, containing two trivial no-trade equilibria without trade opportunities.In this paper we refine the concept of quantity constrained equilibrium and propose a specific quantity constrained equilibrium which may serve as a general equilibrium in case of price restrictions.At this equilibrium demand rationing and supply rationing are in balance with each other, so that trade opportunities are maximal and therefore trivial no-trade and other equilibria with less trade opportunities are excluded.Moreover, in equilibrium only relative prices matter. Any homogenous transformation or normalization of the set of admissible prices yields the same set of quantity constrained general equilibria up to scaling of the price vectors.exchange economy;price restrictions;general equilibrium;rationing

Banking in General Equilibrium

This paper attempts to provide a step towards understanding the role of financial intermediaries ("banks") in aggregate economic activity. We first develop a model of the intermediary sector which is highly simplified, but rich enough to motivate several special features of bauks. Of particular importance in our model is the assumption that banks are more efficient than the public in evaluating and auditing certain information --intensive loan projects. Banks are also assumed to have private information about their investments, which motivates the heavy reliance of banks on debt rather than equity finance and their need for buffer stock capital. We embed this intermediary sector in a general equilibrium framework, which includes consumers and a non-banking investment sector. Mainly because banks have superior access to some investments, factors affecting the size or efficiency of banking will also have an impact on the aggregate economy. Among the factors affecting intermediation, we show, are the adequacy of bank capital, the riskiness of bank investments, and the costs of bank monitoring. We also show that our model is potentially useful for understanding the macroeconomic effects of phenomena such as financial crises, disintermediation, banking regulation, and certain types of monetary policy.