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

Muffasir Badshah (), Paul Beaumont and Anuj Srivastava ()

Computational Economics, 2013, vol. 41, issue 2, 193 pages

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. Copyright Springer Science+Business Media, LLC. 2013

Keywords: Numerical solutions; Wealth distributions; Stationary equilibria; DSGE models (search for similar items in EconPapers)
Date: 2013
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Working Paper: Computing Equilibrium Wealth Distributions in Models with Heterogeneous-Agents, Incomplete Markets and Idiosyncratic Risk (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:compec:v:41:y:2013:i:2:p:171-193

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DOI: 10.1007/s10614-011-9313-8

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