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Solving Dynamic Models With Aggregate Shocks And Heterogeneous Agents

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Author Info
DEN HAAN, WOUTER J.
Abstract

I develop an algorithm for solving dynamic models in which individualdecision rules and the cross-sectional distribution of agents characteristics influence each other. To illustrate the algorithm, Isolve an endowment economy with incomplete markets, a continuum ofheterogeneous agents, and aggregate shocks. The key innovation of thealgorithm is to parameterize the (cross-sectional) density with aflexible functional form, which makes it possible to avoid simulationtechniques. The paper shows how to check for accuracy and establisheslinks between the properties of the incomplete-markets economy andthe aspects involved in obtaining a numerical solution.

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File URL: http://journals.cambridge.org/abstract_S1365100597003040
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Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 1 (1997)
Issue (Month): 02 (June)
Pages: 355-386
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:cup:macdyn:v:1:y:1997:i:02:p:355-386_00

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  2. Lawrence J. Christiano & Jonas D.M. Fisher, 1997. "Algorithms for solving dynamic models with occasionally binding constraints," Working Paper 9711, Federal Reserve Bank of Cleveland. [Downloadable!]
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  4. Yann Algan & Olivier Allais & Wouter J. Den Haan, 2006. "Solving heterogeneous-agent models with parameterized cross-sectional distributions," PSE Working Papers 2006-46, PSE (Ecole normale supérieure). [Downloadable!]
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