IDEAS home Printed from https://ideas.repec.org/a/adr/anecst/y2022i146p65-91.html
   My bibliography  Save this article

Refining the Truncation Method to Solve Heterogeneous-Agent Models

Author

Listed:
  • François Le Grand
  • Xavier Ragot

Abstract

We present a refinement of the uniform truncation method of LeGrand and Ragot(2022) to solve heterogeneous-agent models with aggregate shocks. The method consists in providing a finite state-space representation of such economies by truncating idiosyncratic histories. The innovation compared to the uniform method is to allow for truncated histories of different lengths. This offers a finer representation when needed, while considerably reducing the model dimensionality. The method reproduces the steady-state distribution of any heterogeneous-agent model and solves for its dynamics in the presence of aggregate shocks. As with the uniform method, the refined method can be solved using perturbation methods and hence implemented with standard software, such as Dynare. We show that the refined truncation method provides accurate results that improve on those of the uniform method.

Suggested Citation

  • François Le Grand & Xavier Ragot, 2022. "Refining the Truncation Method to Solve Heterogeneous-Agent Models," Annals of Economics and Statistics, GENES, issue 146, pages 65-91.
    • Handle: RePEc:adr:anecst:y:2022:i:146:p:65-91
    DOI: https://doi.org/10.2307/48674139
    as

    Download full text from publisher

    File URL: https://www.jstor.org/stable/48674139
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.2307/48674139?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    More about this item

    Keywords

    Heterogeneous Agents; Truncation Method; Aggregate Shocks;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:adr:anecst:y:2022:i:146:p:65-91. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Secretariat General or Laurent Linnemer (email available below). General contact details of provider: https://edirc.repec.org/data/ensaefr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.