Solving the incomplete markets model with aggregate uncertainty using explicit aggregation

Wouter J. Den Haan and Pontus Rendahl ()
Authors registered in the RePEc Author Service: Wouter Denhaan ()

Journal of Economic Dynamics and Control, 2010, vol. 34, issue 1, 69-78

Abstract: We propose a method to solve models with heterogeneous agents and aggregate uncertainty. The law of motion describing aggregate behavior is obtained by explicitly aggregating the individual policy rule. The algorithm is simpler and faster than existing algorithms that rely on parameterization of the cross-sectional distribution and/or a computationally intensive simulation step. Explicit aggregation establishes a link between the individual policy rule and the set of necessary aggregate state variables, an insight that can be helpful in determining what state variables to include in other algorithms as well.

Keywords: Numerical; solutions; Projection; methods (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (40)

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Working Paper: Solving the Incomplete Markets Model with Aggregate Uncertainty using Explicit Aggregation (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:34:y:2010:i:1:p:69-78

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