Quadrature-Based Methods for Solving Heterogeneous Agent Models with Discontinuous Distributions

Robert Hussey

Computational Economics, 2005, vol. 26, issue 1, 17 pages

Abstract: The paper develops a method for solving heterogeneous agent models in which the distribution of characteristics across agents is a state variable and the distribution can be discontinuous at points that vary endogenously. The method extends the approach of [Tauchen, George and Robert Hussey, Econometrica 59, 1991, 371–396] for solving nonlinear rational expectations models using a discrete-state Markov chain approximation to a continuous Markov process. The paper presents an example application of a general equilibrium labor search model with persistence in the idiosyncratic productivity of heterogeneous firms. Copyright Springer Science + Business Media, Inc. 2005

Keywords: Markov chain; numerical integration; truncated distribution; numerical solution technique; labor search (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1007/s10614-005-6414-2

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