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A reinforcement learning approach to solving incomplete market models with aggregate uncertainty

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  • Andrei Jirnyi

    ()
    (Kellogg School of Management)

  • Vadym Lepetyuk

    ()
    (Universidad de Alicante)

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    Abstract

    We develop a method of solving heterogeneous agent models in which individual decisions depend on the entire cross-sectional distribution of individual state variables, such as incomplete market models with liquidity constraints. Our method is based on the principle of reinforcement learning, and does not require parametric assumptions on either the agents' information set, or on the functional form of the aggregate dynamics.

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2011-21.pdf
    File Function: Fisrt version / Primera version, 2011
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    Bibliographic Info

    Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2011-21.

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    Length: 23 pages
    Date of creation: Sep 2011
    Date of revision:
    Publication status: Published by Ivie
    Handle: RePEc:ivi:wpasad:2011-21

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    Related research

    Keywords: Heterogeneous agents; macroeconomics; dynamic programming; reinforcement learning.;

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    References

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    1. Maliar, Serguei & Maliar, Lilia & Judd, Kenneth, 2011. "Solving the multi-country real business cycle model using ergodic set methods," Journal of Economic Dynamics and Control, Elsevier, vol. 35(2), pages 207-228, February.
    2. 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, vol. 34(1), pages 42-49, January.
    3. Reiter, Michael, 2010. "Solving the incomplete markets model with aggregate uncertainty by backward induction," Journal of Economic Dynamics and Control, Elsevier, vol. 34(1), pages 28-35, January.
    4. Den Haan, Wouter J. & Judd, Kenneth L. & Juillard, Michel, 2011. "Computational suite of models with heterogeneous agents II: Multi-country real business cycle models," Journal of Economic Dynamics and Control, Elsevier, vol. 35(2), pages 175-177, February.
    5. Kim, Sunghyun Henry & Kollmann, Robert & Kim, Jinill, 2010. "Solving the incomplete market model with aggregate uncertainty using a perturbation method," Journal of Economic Dynamics and Control, Elsevier, vol. 34(1), pages 50-58, January.
    6. Algan, Yann & Allais, Olivier & Den Haan, Wouter J., 2010. "Solving the incomplete markets model with aggregate uncertainty using parameterized cross-sectional distributions," Journal of Economic Dynamics and Control, Elsevier, vol. 34(1), pages 59-68, January.
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