DEFINITION of 'Recursive Competitive Equilibrium - RCE'

An equilibrium concept associated with dynamic programs. Recursive competitive equilibrium (RCE) is characterized by time-invariant equilibrium decision rules that specify actions as a function of a limited number of state variables, which summarize the effects of past decisions and current information. Economic agents with knowledge of these state variables assess the current state of the economy. As their actions determine in part the values of the state variables in the next sequential time period, this structure is termed 'recursive'.

BREAKING DOWN 'Recursive Competitive Equilibrium - RCE'

The RCE concept is used in exploring various economic issues, including monetary and fiscal policy and business-cycle fluctuations. RCE decision rules include a number of functions, such as pricing and value.

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