Advanced Search
MyIDEAS: Login to save this article or follow this journal

Comparison of solutions to the incomplete markets model with aggregate uncertainty

Contents:

Author Info

  • Den Haan, Wouter J.

Abstract

This paper compares numerical solutions to the model of Krusell and Smith [1998. Income and wealth heterogeneity in the macroeconomy. Journal of Political Economy 106, 867-896] generated by different algorithms. The algorithms have very similar implications for the correlations between different variables. Larger differences are observed for (i) the unconditional means and standard deviations of individual variables, (ii) the behavior of individual agents during particularly bad times, (iii) the volatility of the per capita capital stock, and (iv) the behavior of the higher-order moments of the cross-sectional distribution. For example, the two algorithms that differ the most from each other generate individual consumption series that have an average (maximum) difference of 1.63% (11.4%).

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6V85-4X01P6T-2/2/944569cdddfbca9b2444dde01e71e390
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 34 (2010)
Issue (Month): 1 (January)
Pages: 4-27

as in new window
Handle: RePEc:eee:dyncon:v:34:y:2010:i:1:p:4-27

Contact details of provider:
Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Numerical solutions Approximations;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Per Krusell & Anthony A. Smith, Jr., . "Income and Wealth Heterogeneity, Portfolio Choice, and Equilibrium Asset Returns," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 1997-45, Carnegie Mellon University, Tepper School of Business.
  2. Yann Algan & Olivier Allais & Wouter J Den Haan, 2010. "Solving the incomplete markets model with aggregate uncertainty using parameterized cross-sectional distributions," Working Papers 31290, Institut National de la Recherche Agronomique, France.
  3. Jose-Victor Rios-Rull, 1997. "Computation of equilibria in heterogeneous agent models," Staff Report, Federal Reserve Bank of Minneapolis 231, Federal Reserve Bank of Minneapolis.
  4. Per Krusell & Anthony A. Smith, Jr., . "Income and Wealth Heterogeneity in the Macroeconomy," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 1997-37, Carnegie Mellon University, Tepper School of Business.
  5. Den Haan, Wouter J & Marcet, Albert, 1994. "Accuracy in Simulations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(1), pages 3-17, January.
  6. Den Haan, Wouter J, 1996. "Heterogeneity, Aggregate Uncertainty, and the Short-Term Interest Rate," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 14(4), pages 399-411, October.
  7. Manuel S. Santos, 2000. "Accuracy of Numerical Solutions using the Euler Equation Residuals," Econometrica, Econometric Society, Econometric Society, vol. 68(6), pages 1377-1402, November.
  8. Bruce Preston & Mauro Roca, 2007. "Incomplete Markets, Heterogeneity and Macroeconomic Dynamics," NBER Working Papers 13260, National Bureau of Economic Research, Inc.
  9. Den Haan, Wouter J., 2010. "Assessing the accuracy of the aggregate law of motion in models with heterogeneous agents," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(1), pages 79-99, January.
  10. Carroll, Christopher D., 2005. "The method of endogenous gridpoints for solving dynamic stochastic optimization problems," CFS Working Paper Series 2005/18, Center for Financial Studies (CFS).
  11. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
  12. Maliar, Lilia & Maliar, Serguei & Valli, Fernando, 2010. "Solving the incomplete markets model with aggregate uncertainty using the Krusell-Smith algorithm," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(1), pages 42-49, January.
  13. Manuel S. Santos & Adrian Peralta-Alva, 2003. "Accuracy of Simulations for Stochastic Dynamic Models," Levine's Bibliography 666156000000000264, UCLA Department of Economics.
  14. Den Haan, Wouter & Rendahl, Pontus, 2008. "Solving the Incomplete Markets Model with Aggregate Uncertainty using Explicit Aggregation," CEPR Discussion Papers 6963, C.E.P.R. Discussion Papers.
  15. Michael Reiter, 2006. "Solving heterogeneous-agent models by projection and perturbation," Economics Working Papers 972, Department of Economics and Business, Universitat Pompeu Fabra.
  16. Michael Reiter, 2000. "Estimating The Accuracy Of Numerical Solutions To Dynamic Optimization Problems," Computing in Economics and Finance 2000 254, Society for Computational Economics.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Thomas Mertens, 2012. "Solving General Incomplete Market Models with Substantial Heterogeneity," 2012 Meeting Papers, Society for Economic Dynamics 1173, Society for Economic Dynamics.
  2. Tobias Grasl, 2013. "Solving Incomplete Markets Models by Derivative Aggregation," Birkbeck Working Papers in Economics and Finance, Birkbeck, Department of Economics, Mathematics & Statistics 1302, Birkbeck, Department of Economics, Mathematics & Statistics.
  3. Huixin Bi & Eric M. Leeper & Campbell B. Leith, 2012. "Uncertain Fiscal Consolidations," NBER Working Papers 17844, National Bureau of Economic Research, Inc.
  4. Horvath, Michal, 2012. "Computational accuracy and distributional analysis in models with incomplete markets and aggregate uncertainty," Economics Letters, Elsevier, vol. 117(1), pages 276-279.
  5. Kenneth L. Judd & Lilia Maliar & Serguei Maliar, 2011. "How to Solve Dynamic Stochastic Models Computing Expectations Just Once," NBER Working Papers 17418, National Bureau of Economic Research, Inc.
  6. Marco Cozzi, 2014. "The Krusell-Smith Algorithm: Are Self-fulfilling Equilibria Likely?," Working Papers, Queen's University, Department of Economics 1323, Queen's University, Department of Economics.
  7. Reiter, Michael, 2010. "Solving the incomplete markets model with aggregate uncertainty by backward induction," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(1), pages 28-35, January.
  8. Hull, Isaiah, 2013. "Approximate dynamic programming with postdecision states as a solution method for dynamic economic models," Working Paper Series 276, Sveriges Riksbank (Central Bank of Sweden).
  9. Kenneth L. Judd & Lilia Maliar & Serguei Maliar, 2014. "Lower Bounds on Approximation Errors: Testing the Hypothesis That a Numerical Solution Is Accurate?," BYU Macroeconomics and Computational Laboratory Working Paper Series, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory 2014-06, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory.
  10. Grey Gordon, 2011. "Computing Dynamic Heterogeneous-Agent Economies: Tracking the Distribution," PIER Working Paper Archive 11-018, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  11. Michael Reiter, 2009. "Approximate Aggregation in Heterogeneous-Agent Models," 2009 Meeting Papers, Society for Economic Dynamics 733, Society for Economic Dynamics.
  12. Florin Bilbiie & Tommaso Monacelli & Roberto Perotti, 2012. "Public Debt and Redistribution with Borrowing Constraints," Working Papers 448, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  13. Muffasir Badshah & Paul Beaumont & Anuj Srivastava, 2013. "Computing Equilibrium Wealth Distributions in Models with Heterogeneous-Agents, Incomplete Markets and Idiosyncratic Risk," Computational Economics, Society for Computational Economics, vol. 41(2), pages 171-193, February.
  14. Den Haan, Wouter J. & De Wind, Joris, 2012. "Nonlinear and stable perturbation-based approximations," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 36(10), pages 1477-1497.
  15. Jose Lopez, 2012. "Labor Supply, Aggregation and the Labor Wedge," 2012 Meeting Papers, Society for Economic Dynamics 737, Society for Economic Dynamics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:34:y:2010:i:1:p:4-27. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.