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Quadrature-Based Methods for Solving Heterogeneous Agent Models with Discontinuous Distributions

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  • Robert Hussey

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Abstract

The paper develops a method for solving heterogeneous agent models in which the distribution of characteristics across agents is a state variable and the distribution can be discontinuous at points that vary endogenously. The method extends the approach of [Tauchen, George and Robert Hussey, Econometrica 59, 1991, 371–396] for solving nonlinear rational expectations models using a discrete-state Markov chain approximation to a continuous Markov process. The paper presents an example application of a general equilibrium labor search model with persistence in the idiosyncratic productivity of heterogeneous firms. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s10614-005-6414-2
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Bibliographic Info

Article provided by Society for Computational Economics in its journal Computational Economics.

Volume (Year): 26 (2005)
Issue (Month): 1 (August)
Pages: 1-17

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Handle: RePEc:kap:compec:v:26:y:2005:i:1:p:1-17

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Web page: http://www.springerlink.com/link.asp?id=100248
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Related research

Keywords: Markov chain; numerical integration; truncated distribution; numerical solution technique; labor search;

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  1. Per Krusell & Anthony A. Smith, Jr., . "Income and Wealth Heterogeneity in the Macroeconomy," GSIA Working Papers 1997-37, Carnegie Mellon University, Tepper School of Business.
  2. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  3. Wright, Brian D & Williams, Jeffrey C, 1984. "The Welfare Effects of the Introduction of Storage," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 169-92, February.
  4. Tauchen, George & Hussey, Robert, 1991. "Quadrature-Based Methods for Obtaining Approximate Solutions to Nonlinear Asset Pricing Models," Econometrica, Econometric Society, vol. 59(2), pages 371-96, March.
  5. Robert Hussey, 2003. "Labor Turnover and the Dynamics of Labor Productivity," Working Papers gueconwpa~03-03-32, Georgetown University, Department of Economics.
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