TY  - BOOK
AU  - Haan,Wouter J.Den
ED  - National Bureau of Economic Research.
TI  - Understanding Equilibrium Models with a Small and a Large Number of Agents
T2  - NBER working paper series
PY  - 1996///
CY  - Cambridge, Mass.
PB  - National Bureau of Economic Research
N1  - October 1996; Hardcopy version available to institutional subscribers
N2  - In this paper, I compare a two-agent asset pricing model with the corresponding model with a continuum of agents.  In a two-agent economy, interest rates respond to because each agent represents half of the population.  These interest rate effects facilitate consumption smoothing.  An agent in a two-agent economy, however, can never lend more than the other agent is allowed to borrow, which prevents him from building a buffer stock of assets.  For most parameter values, the first effect is more important.  For some parameter values, the interest rate effects in the two-agent economy are so strong that a relaxation of the borrowing constraint reduces an agent's utility.  In contrast to these differences, I find that for most parameter values there are no large differences in average interest rates across the two types of economies.  In addition, I analyze the business cycle behavior of interest rates in an incomplete markets economy with a continuum of agents.  The dynamic response of interest rates to aggregate shocks is a lot more complicated than the response in a complete markets economy and the magnitude of the response is bigger
UR  - https://www.nber.org/papers/w5792
UR  - http://dx.doi.org/10.3386/w5792
ER  -