Quantitative Economics

Journal Of The Econometric Society

Edited by: Stéphane Bonhomme • Print ISSN: 1759-7323 • Online ISSN: 1759-7331

Quantitative Economics: Nov, 2020, Volume 11, Issue 4

Solving discrete time heterogeneous agent models with aggregate risk and many idiosyncratic states by perturbation

Christian Bayer, Ralph Luetticke

This paper describes a method for solving heterogeneous agent models with aggregate risk and many idiosyncratic states formulated in discrete time. It extends the method proposed by Reiter (2009) and complements recent work by Ahn, Kaplan, Moll, Winberry, and Wolf (2017) on how to solve such models in continuous time. We suggest first solving for the stationary equilibrium of the model without aggregate risk. We then write the functionals that describe the dynamic equilibrium as sparse expansions around their stationary equilibrium counterparts. Finally, we use the perturbation method of Schmitt‐Grohé and Uribe (2004) to approximate the aggregate dynamics of the model.

Numerical methods heterogeneous agent models linearization incomplete markets C63 E32

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Supplement to "Solving discrete time heterogeneous agent models with aggregate risk and many idiosyncratic states by perturbation"

Supplement to "Solving discrete time heterogeneous agent models with aggregate risk and many idiosyncratic states by perturbation"

Supplement to "Solving discrete time heterogeneous agent models with aggregate risk and many idiosyncratic states by perturbation"

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