W.J. den Haan
- Solving heterogenous-agent models with parameterized cross-sectional distributions
- Journal of Economic Dynamics & Control
- Volume | Issue number
- 32 | 3
- Pages (from-to)
- Number of pages
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
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.
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