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Solving heterogeneous-agent models with parameterized cross-sectional distributions

  • Yann Algan

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris, UPEM - Université Paris-Est Marne-la-Vallée - Université Paris-Est Marne-la-Vallée (UPEMLV))

  • Olivier Allais

    ()

    (CORELA - Laboratoire de Recherche sur la Consommation - Institut national de la recherche agronomique (INRA))

  • Wouter J. Den Haan

    (University of Amsterdam [Amsterdam] - University of Amsterdam, CEPR - Center for Economic Policy Research - CEPR, London Business School - London Business School)

A new algorithm is developed to solve models with heterogeneous agents and aggregate uncertainty that avoids some disadvantages of the prevailing algorithm that strongly relies on simulation techniques and is easier to implement than existing algorithms. A key aspect of the algorithm is a new procedure that parameterizes the cross-sectional distribution, which makes it possible to avoid Monte Carlo integration. The paper also develops a new simulation procedure that not only avoids cross-sectional sampling variation but is also more than ten times faster than the standard procedure of simulating an economy with a large but finite number of agents. This procedure can help to improve the efficiency of the most popular algorithm in which simulation procedures play a key role.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00589129.

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Date of creation: Dec 2006
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Handle: RePEc:hal:psewpa:halshs-00589129
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00589129
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  1. Michael Reiter, 2001. "Recursive Solution Of Heterogeneous Agent Models," Computing in Economics and Finance 2001 167, Society for Computational Economics.
  2. Lawrence J. Christiano & Jonas D.M. Fisher, 1997. "Algorithms for solving dynamic models with occasionally binding constraints," Working Paper 9711, Federal Reserve Bank of Cleveland.
  3. Jianjun Miao, 2004. "Competitive Equilibria of Economies with a Continuum of Consumers and Aggregate Shocks," CEMA Working Papers 460, China Economics and Management Academy, Central University of Finance and Economics.
  4. Bruce Preston & Mauro Roca, 2007. "Incomplete Markets, Heterogeneity and Macroeconomic Dynamics," NBER Working Papers 13260, National Bureau of Economic Research, Inc.
  5. Michael Reiter, 2006. "Solving heterogeneous-agent models by projection and perturbation," Economics Working Papers 972, Department of Economics and Business, Universitat Pompeu Fabra.
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