Favilukis, Jack, Ludvigson, Sydney C., Lynch, Anthony, Sargent, Thomas J. and Van Nieuwerburgh, Stijn (2007) An algorithm to solve heterogenous agent models with aggregate uncertainty. .
Full text not available from this repository.Abstract
General equilibrium models with heterogeneous agents are very difficult to solve because the wealth distribution, a multidimensional and infinite object, must be part of the state space. Krussell and Smith propose a numerical solution where the wealth distribution is summarized by its first moment. However, the volatility of equity in their model is unrealistically low. I show that markets do not clear in a model with more realistic volatility if the wealth distribution is summarized by its first moment only. I propose an alternate algorithm where the wealth distribution is summarized by a finite set of probability density functions which come from simulating the model. This algorithm can solve both the Krussell and Smith model, as well the more volatile version.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Additional Information: | © 2007 The Authors |
| Divisions: | Finance |
| Subjects: | H Social Sciences > HB Economic Theory |
| JEL classification: | D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D58 - Computable and Other Applied General Equilibrium Models |
| Date Deposited: | 16 Apr 2012 14:33 |
| Last Modified: | 11 Sep 2025 04:12 |
| URI: | http://eprints.lse.ac.uk/id/eprint/43133 |
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