The Fundamentals of Economic Dynamics and Policy Analyses : Learning through Numerical Examples. Part III. Stochastic Dynamic General Equilibrium

Abstract

general equilibrium. Intuitively, a dynamic general equilibrium consists of prices and quantities of goods and production factors such that (i) given the prices, the quantities of goods and production factors maximize every economic agent's payoff function, and (TM) the prices clear every market in every time period. In other words, the prices equate demand and supply in every market in every time period. The concept of dynamic general equilibrium is a natural extension of the concept of general equilibrium of static economic models to dynamic models. In the following, firstly, we explain the concept of general equilibrium of static economic models. Then, we proceed to explain the concept of dynamic general equilibrium of dynamic economic models that is shown to be a natural extension of the general equilibrium of static economic models.