Solving heterogeneous-agent models by projection and perturbation

Michael Reiter

Research output: Contribution to journalArticle

Abstract

The paper proposes a numerical solution method for general equilibrium models with a continuum of heterogeneous agents that combines elements of projection and of perturbation methods. The basic idea is to solve first for the stationary solution of the model, without aggregate shocks but with fully specified idiosyncratic shocks. Afterwards one computes a first-order perturbation of the solution in the aggregate shocks. This approach allows to include a high-dimensional representation of the cross-sectional distribution in the state vector. The method is applied to a model of household saving with uninsurable income risk and liquidity constraints. Techniques are discussed to reduce the dimension of the state space such that higher order perturbations are feasible.

Original languageEnglish (US)
Pages (from-to)649-665
Number of pages17
JournalJournal of Economic Dynamics and Control
Volume33
Issue number3
DOIs
StatePublished - Mar 2009

Keywords

  • Heterogeneous agents
  • Invariant distribution
  • Perturbation methods
  • Projection methods

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

Fingerprint Dive into the research topics of 'Solving heterogeneous-agent models by projection and perturbation'. Together they form a unique fingerprint.

  • Cite this