An Endogenous Gridpoint Method for Distributional Dynamics

Christian Bayer, Ralph Luetticke, Maximilian Weiss () and Yannik Winkelmann ()
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Maximilian Weiss: Eberhard Karls University of Tübingen
Yannik Winkelmann: Eberhard Karls University of Tübingen

No 311, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: The "histogram method" (Young, 2010), while the standard approach for analyzing distributional dynamics in heterogeneous agent models, is linear in optimal policies. We introduce a novel method that captures nonlinearities of distributional dynamics. This method solves the distributional dynamics by interpolation instead of integration, which is made possible by making the grid endogenous. It retains the tractability and speed of the histogram method, while increasing numerical efficiency even in the steady state and producing significant economic differences in scenarios with aggregate risk. We document this by studying aggregate investment risk with a third-order solution using perturbation techniques.

Keywords: Numerical Methods; Distributions; Heterogeneous Agent Models; Linearization (search for similar items in EconPapers)
JEL-codes: C46 C63 E32 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2024-06
New Economics Papers: this item is included in nep-dge
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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_311_2024.pdf First version, 2024 (application/pdf)

Related works:
Working Paper: An Endogenous Gridpoint Method for Distributional Dynamics (2024)
Working Paper: An Endogenous Gridpoint Method for Distributional Dynamics (2024)
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