Solving the incomplete market model with aggregate uncertainty using a perturbation method
We use a perturbation method to solve the incomplete markets model with aggregate uncertainty described in den Haan et al. [Computational suite of models with heterogeneous agents: incomplete markets and model uncertainty. Journal of Economic Dynamics & Control, this issue]. To apply that method, we use a "barrier method" to replace the original problem with occasionally binding inequality constraints by one with only equality constraints. We replace the structure with a continuum of agents by a setting in which a single infinitesimal agent faces prices generated by a representative-agent economy. We also solve a model variant with a large (but finite) number of agents. Our perturbation-based method is much simpler and faster than other methods.
Year of publication: |
2010
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Authors: | Kim, Sunghyun Henry ; Kollmann, Robert ; Kim, Jinill |
Published in: |
Journal of Economic Dynamics and Control. - Elsevier, ISSN 0165-1889. - Vol. 34.2010, 1, p. 50-58
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Publisher: |
Elsevier |
Keywords: | Heterogeneous agents Occasionally binding inequality constraints Barrier method |
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