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Solving heterogeneous agent models in discrete time with many idiosyncratic states by perturbation methods

Christian Bayer and Ralph Luetticke

No 13071, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper describes a method for solving heterogeneous agent models with aggregate risk and many idiosyncratic states formulated in discrete time. It extends the method proposed by Reiter (2009) and complements recent work by Ahn et al. (2017) on how to solve such models in continuous time. We suggest first solving for the stationary equilibrium of the model without aggregate risk. We then write the functionals that describe the dynamic equilibrium as sparse expansions around their stationary equilibrium counterparts. Finally we use the perturbation method of Schmitt-Grohé and Uribe (2004) to approximate the aggregate dynamics of the model.

Keywords: Numerical methods; Heterogeneous agent models; Linearization; Incomplete markets (search for similar items in EconPapers)
JEL-codes: C63 E32 (search for similar items in EconPapers)
Date: 2018-07
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-hme, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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