TY - JOUR
T1 - Solving heterogeneous-agent models by projection and perturbation
AU - Reiter, Michael
N1 - Funding Information:
I am grateful to Ken Judd for very helpful discussions on the topics of this paper, and to James Costain, an anonymous referee and the editor, Wouter den Haan, for very useful comments on the first version of the paper. Support from Spanish ministry Grants SEJ2004-03619 and SEC2002-01601 is gratefully acknowledged.
PY - 2009/3
Y1 - 2009/3
N2 - 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.
AB - 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.
KW - Heterogeneous agents
KW - Invariant distribution
KW - Perturbation methods
KW - Projection methods
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U2 - 10.1016/j.jedc.2008.08.010
DO - 10.1016/j.jedc.2008.08.010
M3 - Article
AN - SCOPUS:59349100520
VL - 33
SP - 649
EP - 665
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
SN - 0165-1889
IS - 3
ER -