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Computing Equilibrium Wealth Distributions in Models with Heterogeneous-Agents, Incomplete Markets and Idiosyncratic Risk

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  • Muffasir Badshah
  • Paul Beaumont
  • Anuj Srivastava

Abstract

This paper describes an accurate, fast and robust fixed point method for computing the stationary wealth distributions in macroeconomic models with a continuum of infinitely-lived households who face idiosyncratic shocks with aggregate certainty. The household wealth evolution is modeled as a mixture Markov process and the stationary wealth distributions are obtained using eigen structures of transition matrices by enforcing the conditions for the Perron–Frobenius theorem by adding a perturbation constant to the Markov transition matrix. This step is utilized repeatedly within a binary search algorithm to find the equilibrium state of the system. The algorithm suggests an efficient and reliable framework for studying dynamic stochastic general equilibrium models with heterogeneous agents. Copyright Springer Science+Business Media, LLC. 2013

Suggested Citation

  • Muffasir Badshah & Paul Beaumont & Anuj Srivastava, 2013. "Computing Equilibrium Wealth Distributions in Models with Heterogeneous-Agents, Incomplete Markets and Idiosyncratic Risk," Computational Economics, Springer;Society for Computational Economics, vol. 41(2), pages 171-193, February.
    • Handle: RePEc:kap:compec:v:41:y:2013:i:2:p:171-193
    DOI: 10.1007/s10614-011-9313-8
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    5. Burkhard Heer & Alfred Maußner, 2024. "Dynamic General Equilibrium Modeling," Springer Texts in Business and Economics, Springer, edition 3, number 978-3-031-51681-8, August.
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    1. Burkhard Heer & Alfred Maußner, 2024. "Dynamic General Equilibrium Modeling," Springer Texts in Business and Economics, Springer, edition 3, number 978-3-031-51681-8, August.

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    More about this item

    Keywords

    Numerical solutions; Wealth distributions; Stationary equilibria; DSGE models;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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