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Quadrature-Based Methods for Solving Heterogeneous Agent Models with Discontinuous Distributions

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  • Robert Hussey

Abstract

The paper develops a method for solving heterogeneous agent models in which the distribution of characteristics across agents is a state variable and the distribution can be discontinuous at points that vary endogenously. The method extends the approach of [Tauchen, George and Robert Hussey, Econometrica 59, 1991, 371–396] for solving nonlinear rational expectations models using a discrete-state Markov chain approximation to a continuous Markov process. The paper presents an example application of a general equilibrium labor search model with persistence in the idiosyncratic productivity of heterogeneous firms. Copyright Springer Science + Business Media, Inc. 2005

Suggested Citation

  • Robert Hussey, 2005. "Quadrature-Based Methods for Solving Heterogeneous Agent Models with Discontinuous Distributions," Computational Economics, Springer;Society for Computational Economics, vol. 26(1), pages 1-17, August.
    • Handle: RePEc:kap:compec:v:26:y:2005:i:1:p:1-17
    DOI: 10.1007/s10614-005-6414-2
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    References listed on IDEAS

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    1. Tauchen, George & Hussey, Robert, 1991. "Quadrature-Based Methods for Obtaining Approximate Solutions to Nonlinear Asset Pricing Models," Econometrica, Econometric Society, vol. 59(2), pages 371-396, March.
    2. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
    3. Brian D. Wright & Jeffrey C. Williams, 1984. "The Welfare Effects of the Introduction of Storage," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(1), pages 169-192.
    4. Robert Hussey, 2003. "Labor Turnover and the Dynamics of Labor Productivity," Working Papers gueconwpa~03-03-32, Georgetown University, Department of Economics.
    5. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
    6. Dale T. Mortensen & Christopher A. Pissarides, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 397-415.
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