Abstract
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.
Original language | English |
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Pages (from-to) | 50-58 |
Number of pages | 9 |
Journal | Journal of Economic Dynamics and Control |
Volume | 34 |
Issue number | 1 |
DOIs | |
Publication status | Published - 2010 Jan |
Externally published | Yes |
Keywords
- Barrier method
- Heterogeneous agents
- Occasionally binding inequality constraints
ASJC Scopus subject areas
- Economics and Econometrics
- Control and Optimization
- Applied Mathematics