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Computing Equilibria in Dynamic Models with Occasionally Binding Constraints

Author

Listed:
  • Michael Grill

    (Mannheim University)

  • Johannes Brumm

    (Mannheim University)

Abstract

We embed it into a time iteration algorithm to compute recursive equilibria in an infinite horizon endowment economy where heterogeneous agents trade in various assets subject to collateral constraints and short sale constraints. We show that adaptive simplicial interpolation computes equilibria accurately in terms of Euler equation errors and outperforms equidistant grid schemes by far.

Suggested Citation

  • Michael Grill & Johannes Brumm, 2010. "Computing Equilibria in Dynamic Models with Occasionally Binding Constraints," 2010 Meeting Papers 695, Society for Economic Dynamics.
  • Handle: RePEc:red:sed010:695
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    File URL: https://economicdynamics.org/meetpapers/2010/paper_695.pdf
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    References listed on IDEAS

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    1. Den Haan, Wouter J., 2001. "The importance of the number of different agents in a heterogeneous asset-pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 25(5), pages 721-746, May.
    2. Grune, Lars & Semmler, Willi, 2004. "Using dynamic programming with adaptive grid scheme for optimal control problems in economics," Journal of Economic Dynamics and Control, Elsevier, vol. 28(12), pages 2427-2456, December.
    3. Pontus Rendahl, 2006. "Inequality Constraints in Recursive Economies," Economics Working Papers ECO2006/6, European University Institute.
    4. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, January.
    5. Christiano, Lawrence J. & Fisher, Jonas D. M., 2000. "Algorithms for solving dynamic models with occasionally binding constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 24(8), pages 1179-1232, July.
    6. Krueger, Dirk & Kubler, Felix, 2004. "Computing equilibrium in OLG models with stochastic production," Journal of Economic Dynamics and Control, Elsevier, vol. 28(7), pages 1411-1436, April.
    7. Carroll, Christopher D., 2006. "The method of endogenous gridpoints for solving dynamic stochastic optimization problems," Economics Letters, Elsevier, vol. 91(3), pages 312-320, June.
    8. Heaton, John & Lucas, Deborah J, 1996. "Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 443-487, June.
    9. Barillas, Francisco & Fernandez-Villaverde, Jesus, 2007. "A generalization of the endogenous grid method," Journal of Economic Dynamics and Control, Elsevier, vol. 31(8), pages 2698-2712, August.
    10. Felix Kubler & Karl Schmedders, 2003. "Stationary Equilibria in Asset-Pricing Models with Incomplete Markets and Collateral," Econometrica, Econometric Society, vol. 71(6), pages 1767-1793, November.
    11. Judd, Kenneth L., 1992. "Projection methods for solving aggregate growth models," Journal of Economic Theory, Elsevier, vol. 58(2), pages 410-452, December.
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    Cited by:

    1. Michael Grill & Klaus Adam, 2012. "Optimal Sovereign Debt Default," 2012 Meeting Papers 882, Society for Economic Dynamics.
    2. Michael Grill & Karl Schmedders & Felix Kubler & Johannes Brumm, 2012. "Margin Requirements and Asset Prices," 2012 Meeting Papers 533, Society for Economic Dynamics.

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