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

Author

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  • Lilia Maliar

    (Universidad de Alicante)

  • Fernando Valli

    (Universidad de Alicante)

  • Serguei Maliar

    (Universidad de Alicante)

Abstract

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.

Suggested Citation

  • Lilia Maliar & Fernando Valli & Serguei Maliar, 2009. "Solving the incomplete markets model with aggregate uncertainty using the Krusell-Smith algorithm," Working Papers. Serie AD 2009-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2009-03
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