This paper studies the business cycle dynamics of the income and wealth distributions in the context of the neoclassical growth model where agents are heterogeneous in initial wealth and non-acquired skills. Our economy admits a representative consumer which enables us to characterize the...

This paper studies the business cycle dynamics of income and wealth distributions in the context of the neoclassical growth model where agents are heterogeneous in initial wealth and non-acquired skills. Our economy admits a representative consumer which enables us to characterize distributive...

First, we propose a more e¢ cient implementation of the Smolyak method for inter- polation, namely, we show how to avoid costly evaluations of repeated basis functions in the conventional Smolyak formula. Second, we extend the Smolyak method to include anisotropic constructions; this allows us...

We use the stochastic simulation algorithm, described in Judd, Maliar and Maliar (2009), and the cluster-grid algorithm, developed in Judd, Maliar and Maliar (2010a), to solve a collection of multi-country real business cycle models. The following ingredients help us reduce the cost in...

This paper studies a complete-market version of the neoclassical growth model, where agents face idiosyncratic shocks to earnings. We show that if agents possess identical preferences of either the CRRA or the addilog type, then the heterogeneous-agent economy behaves as if there was a...

Does a heterogeneous agents version of a neoclassical model with labor-leisure choice replicatethe distributions of consumption and working hours observed in the cross-sectional data? Doesincorporating heterogeneity enhance the aggregate performance of the representative agentmodel? We address...

This paper studies a complete-market version of the neoclassical growth model, where agents face idiosyncratic shocks to eearnings. We show that if agents possess identical preferences of either the CRRA or the addilog type, then the heterogeneous-agent economy behaves as if there was a...

We introduce an envelope condition method (ECM) for solving dynamic programming problems. The ECM method is simple to implement, dominates conventional value function iteration and is comparable in accuracy and cost to Carroll’s (2005) endogenous grid method. Codes are available.

Local (perturbation) methods compute solutions in one point and tend to deliver far lower accuracy levels than global solution methods. We develop a hybrid method that solves for some policy functions locally (using a perturbation method) and that solves for the other policy functions globally...