Computing the Cross-Sectional Distribution to Approximate Stationary Markov Equilibria with Heterogeneous Agents and Incomplete Markets
Event details
| Date | 05.05.2015 |
| Hour | 12:00 › 13:00 |
| Speaker | Elisabeth PROHL (PhD Candidate, University of Geneva and Swiss Finance Institute) |
| Location | |
| Category | Conferences - Seminars |
Dynamic stochastic general equilibrium models with heterogeneous agents and incomplete markets usually have to be solved numerically. Existing algorithms approximate the law of motion of aggregate variables parametrically using a limited number of moments of the cross-sectional distribution. None of these algorithms takes full advantage of the stationary state distribution of such equilibria. In this paper, a computable expression for the exact law of motion is introduced which lead to the stationary state distribution of the Markov equilibrium. The algorithm which is a hybrid of projection and perturbation methods is shown to converge. Using the introduced methodology, the well-known approximation and convergence issues of some existing algorithms, most prominently the Krusell-Smith algorithm, are rationalized. It is shown why these algorithms do not converge under certain circumstances.
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