Solving the incomplete markets model with aggregate uncertainty using parameterized cross-sectional distributions |
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Authors: | Yann Algan Olivier Allais Wouter J Den Haan |
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Institution: | aSciences Po, OFCE, Paris, France;bINRA, UR1303 ALISS, F-94205 Ivry-sur-Seine, France;cDepartment of Economics, University of Amsterdam, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands and CEPR |
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Abstract: | This note describes how the incomplete markets model with aggregate uncertainty in Den Haan et al. Comparison of solutions to the incomplete markets model with aggregate uncertainty. Journal of Economic Dynamics and Control, this issue] is solved using standard quadrature and projection methods. This is made possible by linking the aggregate state variables to a parameterized density that describes the cross-sectional distribution. A simulation procedure is used to find the best shape of the density within the class of approximating densities considered. This note compares several simulation procedures in which there is—as in the model—no cross-sectional sampling variation. |
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Keywords: | Numerical solutions Projection methods Simulations |
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