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...

This paper shows that the R2 and the standard error have fatal flaws and are inadequate accuracy tests. Using data from a Krusell-Smith economy, I show that approximations for the law of motion of aggregate capital, for which the true standard deviation of aggregate capital is up to 14% (119%)...

This paper compares numerical solutions to the model of Krusell and Smith [1998. Income and wealth heterogeneity in the macroeconomy. Journal of Political Economy 106, 867-896] generated by different algorithms. The algorithms have very similar implications for the correlations between different...

This paper describes the first model considered in the computational suite project that compares different numerical algorithms. It is an incomplete markets economy with a continuum of agents and an inequality (borrowing) constraint.

We propose a method to solve models with heterogeneous agents and aggregate uncertainty. The law of motion describing aggregate behavior is obtained by explicitly aggregating the individual policy rule. The algorithm is simpler and faster than existing algorithms that rely on parameterization of...

Users of regular higher-order perturbation approximations can face two problems: policy functions with odd oscillations and simulated data that explode. We propose a perturbation-based approximation that (i) does not have odd shapes, (ii) generates stable time paths, and (iii) avoids the...

This paper describes the second model considered in the computational suite project that compares the performance of different numerical algorithms. It is a multi-country model in which countries face different productivity shocks. Solving such models is a challenging numerical problem unless...