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Solving the incomplete markets model with aggregate uncertainty using parameterized cross-sectional distributions

  • Algan, Yann
  • Allais, Olivier
  • Den Haan, Wouter J.

This note describes how the incomplete markets model with aggregate uncertainty in Den Haan et al. [Comparison of solutions to the incomplete markets model with aggregate uncertainty. Journal of Economic Dynamics and Control, this issue] is solved using standard quadrature and projection methods. This is made possible by linking the aggregate state variables to a parameterized density that describes the cross-sectional distribution. A simulation procedure is used to find the best shape of the density within the class of approximating densities considered. This note compares several simulation procedures in which there is--as in the model--no cross-sectional sampling variation.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 34 (2010)
Issue (Month): 1 (January)
Pages: 59-68

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:1:p:59-68
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Krusell, P & Smith Jr, A-A, 1995. "Income and Wealth Heterogeneity in the Macroeconomic," RCER Working Papers 399, University of Rochester - Center for Economic Research (RCER).
  2. Lawrence J. Christiano & Jonas D.M. Fisher, 1994. "Algorithms for solving dynamic models with occasionally binding constraints," Working Paper Series, Macroeconomic Issues 94-6, Federal Reserve Bank of Chicago.
  3. Den Haan, Wouter J., 1997. "Solving Dynamic Models With Aggregate Shocks And Heterogeneous Agents," Macroeconomic Dynamics, Cambridge University Press, vol. 1(02), pages 355-386, June.
  4. Yann Algan & Olivier Allais & Wouter J Den Haan, 2007. "Solving Heterogeneous-agent Models with Parameterized Cross-sectional Distributions," Sciences Po publications 6062, Sciences Po.
  5. Jonathan Heathcote, 2003. "Fiscal Policy with Heterogeneous Agents and Incomplete Markets," Working Papers gueconwpa~03-03-23, Georgetown University, Department of Economics.
  6. Jose-Victor Rios-Rull, 1997. "Computation of equilibria in heterogeneous agent models," Staff Report 231, Federal Reserve Bank of Minneapolis.
  7. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, June.
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