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

Muffasir Badshah (), Paul Beaumont and Anuj Srivastava ()
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Muffasir Badshah: Department of Finance and Economcis, Qatar University, Doha Qatar
Anuj Srivastava: Department of Statistics, Florida State University

No wp2011_08_02, Working Papers from Department of Economics, Florida State University

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.

Keywords: Numerical solutions; Wealth distributions; Stationary equilibria; DSGE models (search for similar items in EconPapers)
JEL-codes: C63 D52 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2011-08
New Economics Papers: this item is included in nep-cmp, nep-dge and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://coss.fsu.edu/econpapers/wpaper/wp2011_08_02.pdf First version, 2011-08 (application/pdf)

Related works:
Journal Article: Computing Equilibrium Wealth Distributions in Models with Heterogeneous-Agents, Incomplete Markets and Idiosyncratic Risk (2013)
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