Solving the incomplete markets model with aggregate uncertainty by backward induction
This paper describes a method to solve models with a continuum of agents, incomplete markets and aggregate uncertainty. I use backward induction on a finite grid of points in the aggregate state space. The aggregate state includes a small number of statistics (moments) of the cross-sectional distribution of capital. For any given set of moments, agents use a specific cross-sectional distribution, called "proxy distribution", to compute the equilibrium. Information from the steady state distribution as well as from simulations can be used to chose a suitable proxy distribution.
Year of publication: |
2010
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Authors: | Reiter, Michael |
Published in: |
Journal of Economic Dynamics and Control. - Elsevier, ISSN 0165-1889. - Vol. 34.2010, 1, p. 28-35
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Publisher: |
Elsevier |
Subject: | Heterogeneous agents Backward induction |
Saved in:
Online Resource
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