Solving heterogeneous-agent models with paramaterized cross-sectional distribution

Yann Algan (1, 2, 3) , Olivier Allais (4) , Wouter J. den Haan (5)

1 PJSE - Paris-Jourdan Sciences Economiques
2 PSE - Paris School of Economics
3 OEP - Organisation et Efficacité de Production
4 CORELA - Laboratoire de Recherche sur la Consommation
5 UvA - University of Amsterdam [Amsterdam] = Universiteit van Amsterdam

A new algorithm is developed to solve models with heterogeneous agents and aggregate uncertainty. Projection methods are the main building blocks of the algorithm and - in contrast to the most popular solution procedure - simulations only play a very minor role. The paper also develops a new simulation procedure that not only avoids cross-sectional sampling variation but is 10 (66) times faster than simulating an economy with 10,000 (100,000) agents. Because it avoids cross-sectional sampling variation, it can generate an accurate representation of the whole cross-sectional distribution. Finally, the paper outlines a set of accuracy tests.

Mots clés: Incomplete markets; Numerical solutions; Projection methods; Simulations

Domaines: Economies et finances

Yann Algan, Olivier Allais, Wouter J. den Haan. Solving heterogeneous-agent models with paramaterized cross-sectional distribution. Journal of Economic Dynamics and Control, 2008, 32 (3), pp.875-908. ⟨10.1016/j.jedc.2007.03.007⟩. ⟨halshs-00754295⟩