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Solving the incomplete markets model with aggregate uncertainty using the Krusell-Smith algorithm

  • Lilia Maliar

    ()

    (Universidad de Alicante)

  • Fernando Valli

    (Universidad de Alicante)

  • Serguei Maliar

    (Universidad de Alicante)

This paper studies the properties of the solution to the heterogeneous agents model in Den Haan, Judd and Juillard (2008). To solve for the individual policy rules, we use an Euler-equation method iterating on a grid of prespecified points. To compute the aggregate law of motion, we use the stochastic-simulation approach of Krusell and Smith (1998). We also compare the stochastic- and non-stochastic-simulation versions of the Krusell-Smith algorithm, and we find that the two versions are similar in terms of their speed and accuracy.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2009-03.pdf
File Function: Fisrt version / Primera version, 2009
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2009-03.

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Length: 24 pages
Date of creation: Jan 2009
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2009-03
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  1. Lawrence J. Christiano & Jonas D. M. Fisher, 1994. "Algorithms for solving dynamic models with occasionally binding constraints," Staff Report 171, Federal Reserve Bank of Minneapolis.
  2. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
  3. Maliar, Lilia & Maliar, Serguei, 2003. "Parameterized Expectations Algorithm and the Moving Bounds," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 88-92, January.
  4. Yann Algan & Olivier Allais & Wouter J Den Haan, 2006. "Solving Heterogeneous-agent Models with Parameterized Cross-sectional Distributions," Sciences Po publications 2006 - 46, Sciences Po.
  5. 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).
  6. Maliar, Lilia & Maliar, Serguei, 2006. "The Neoclassical Growth Model with Heterogeneous Quasi-Geometric Consumers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 635-654, April.
  7. Lilia Maliar & Serguei Maliar, 2003. "The Representative Consumer in the Neoclassical Growth Model with Idiosyncratic Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 368-380, April.
  8. Baxter, Marianne & Crucini, Mario J & Rouwenhorst, K Geert, 1990. "Solving the Stochastic Growth Model by a Discrete-State-Space, Euler-Equation Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 19-21, January.
  9. 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.
  10. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
  11. den Haan, Wouter J & Marcet, Albert, 1990. "Solving the Stochastic Growth Model by Parameterizing Expectations," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 31-34, January.
  12. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, June.
  13. Lilia Maliar & Serguei Maliar, 2005. "Solving the Neoclassical Growth Model with Quasi-Geometric Discounting: A Grid-Based Euler-Equation Method," Computational Economics, Society for Computational Economics, vol. 26(2), pages 163-172, October.
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