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Solving the incomplete markets model with aggregate uncertainty using parameterized cross-sectional distributions

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Author Info

  • Algan, Yann
  • Allais, Olivier
  • Den Haan, Wouter J.

Abstract

This note describes how the incomplete markets model with aggregate uncertainty in Den Haan et al. [Comparison of solutions to the incomplete markets model with aggregate uncertainty. Journal of Economic Dynamics and Control, this issue] is solved using standard quadrature and projection methods. This is made possible by linking the aggregate state variables to a parameterized density that describes the cross-sectional distribution. A simulation procedure is used to find the best shape of the density within the class of approximating densities considered. This note compares several simulation procedures in which there is--as in the model--no cross-sectional sampling variation.

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File URL: http://www.sciencedirect.com/science/article/B6V85-4X0F3P5-1/2/e9e49738b507ae98d607809c22b17b6a
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Bibliographic Info

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

Volume (Year): 34 (2010)
Issue (Month): 1 (January)
Pages: 59-68

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:1:p:59-68

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Numerical solutions Projection methods Simulations;

References

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  1. Lawrence J. Christiano & Jonas D.M. Fisher, 1997. "Algorithms for solving dynamic models with occasionally binding constraints," Working Paper Series, Macroeconomic Issues WP-97-15, Federal Reserve Bank of Chicago.
  2. Jonathan Heathcote, 2003. "Fiscal Policy with Heterogeneous Agents and Incomplete Markets," Working Papers gueconwpa~03-03-23, Georgetown University, Department of Economics.
  3. Algan, Yann & Allais, Olivier & Den Haan, Wouter, 2007. "Solving Heterogeneous-Agent Models with Parameterized Cross-Sectional Distributions," CEPR Discussion Papers 6062, C.E.P.R. Discussion Papers.
  4. Krusell, P & Smith Jr, A-A, 1995. "Income and Wealth Heterogeneity in the Macroeconomic," RCER Working Papers 399, University of Rochester - Center for Economic Research (RCER).
  5. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
  6. Jose-Victor Rios-Rull, 1997. "Computation of equilibria in heterogeneous agent models," Staff Report 231, Federal Reserve Bank of Minneapolis.
  7. Den Haan, Wouter J., 1997. "Solving Dynamic Models With Aggregate Shocks And Heterogeneous Agents," Macroeconomic Dynamics, Cambridge University Press, vol. 1(02), pages 355-386, June.
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Citations

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Cited by:
  1. Andrei Jirnyi & Vadym Lepetyuk, 2011. "A reinforcement learning approach to solving incomplete market models with aggregate uncertainty," Working Papers. Serie AD 2011-21, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  2. Pichler, Paul, 2011. "Solving the multi-country Real Business Cycle model using a monomial rule Galerkin method," Journal of Economic Dynamics and Control, Elsevier, vol. 35(2), pages 240-251, February.
  3. Den Haan, Wouter J., 2010. "Comparison of solutions to the incomplete markets model with aggregate uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 34(1), pages 4-27, January.

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