Solving Models with Incomplete Markets and Aggregate Uncertainty Using the Krusell-Smith Algorithm: A Note on the Number and the Placement of Grid Points
AbstractThis paper shows that numerical solutions to models with incomplete markets and aggregate uncertainty obtained using the Krusell and Smith (1998) algorithm are sensitive to the parameterization of the grid in the aggregate asset holdings direction. Higher moments of the cross-sectional distribution of asset holdings can be particularly affected, which is important for welfare analysis. Using grids that are denser around the mean of the ergodic distribution of individual asset holdings can enhance the consistency of the results across parameterizations. The accuracy of the approximation to individual decision functions can be much improved this way.
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Bibliographic InfoPaper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 201105.
Date of creation: 15 Apr 2011
Date of revision:
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More information through EDIRC
Incomplete Markets; Aggregate Uncertainty; Heterogeneous agents; Simulations; Numerical Solutions.;
Find related papers by JEL classification:
- C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-07 (All new papers)
- NEP-CMP-2011-05-07 (Computational Economics)
- NEP-DGE-2011-05-07 (Dynamic General Equilibrium)
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.:
- Lilia Maliar & Fernando Valli & Serguei Maliar, 2009.
"Solving the incomplete markets model with aggregate uncertainty using the Krusell-Smith algorithm,"
Working Papers. Serie AD
2009-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- 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.
- Lilia Maliar & Fernando Valli & Seguei Maliar, 2009. "Matlab code for "Solving the incomplete markets model with aggregate uncertainty using the Krusell-Smith algorithm"," QM&RBC Codes 180, Quantitative Macroeconomics & Real Business Cycles.
- Den Haan, Wouter J. & Judd, Kenneth L. & Juillard, Michel, 2010. "Computational suite of models with heterogeneous agents: Incomplete markets and aggregate uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 34(1), pages 1-3, January.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Solving Models with Incomplete Markets and Aggregate Uncertainty Using the Krusell-Smith Algorithm: A Note on the Number and the Placement of Grid Points
by Christian Zimmermann in NEP-DGE blog on 2011-05-09 01:55:40
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