Solving Large Incomplete Markets Models By Using Perturbative Expansions
AbstractIt has been shown in the econometric literature that consistent estimates of consumption-saving models with incomplete markets can be obtained from cross-section data if the model is solved and the observed agents' choices are compared to those predicted by the policy rules.Estimating this class of models by using numerical dynamic programming to compute policy functions is computationally unfeasible for three reasons: the state space is large, agents are heterogeneous and since the values of the structural parameters are not known a priori the model has to be solved many times. In this paper perturbative expansions are used to solve the model instead of numerical dynamic programming. This approach reduces the high computational cost of computing decision rules by several orders of magnitude, making the above econometric approach feasible. As an application the perturbation technique is used to study the role of aggregation and borrowing constraints in the statistical rejection of some dynamic aggregate incomplete markets models. It is also used to show that the common "time dummy" strategy to estimate models with incomplete markets gives inconsistent estimates of the structural parameters.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2000 with number 347.
Date of creation: 05 Jul 2000
Date of revision:
Contact details of provider:
Postal: CEF 2000, Departament d'Economia i Empresa, Universitat Pompeu Fabra, Ramon Trias Fargas, 25,27, 08005, Barcelona, Spain
Fax: +34 93 542 17 46
Web page: http://enginy.upf.es/SCE/
More information through EDIRC
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral 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: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.