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JEL classification: C6 C63 D52 Keywords: Dynamic stochastic models Heterogeneous agents Aggregate uncertainty Euler-equation methods Simulations Numerical solutions a b s t r a c t This paper studies the properties of the solution to the heterogeneous agents model in Den Haan et al. [2009. Computational suite of models with heterogeneous agents: incomplete(More)
The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. ABSTRACT We develop a projection method that can solve dynamic economic models with a large number of state variables. A distinctive feature of our method is that it operates on the ergodic set realized in equilibrium: we(More)
We present a multi-sector growth model that accommodates long-run demand and supply drivers of structural change. The model generates nonhomothetic Engel curves at all levels of development and is consistent with the decline in agriculture, the hump-shaped evolution of manufacturing and the rise of services over time. The economy converges to a constant(More)
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 representative consumer who faces three kinds of shocks, to preferences,(More)
We develop numerically stable and accurate stochastic simulation approaches for solving dynamic economic models. First, instead of standard least-squares approximation methods, we examine a variety of alternatives, including least-squares methods using singular value decomposition and Tikhonov regulariza-tion, least-absolute deviations methods, and(More)
This is a substantially revised version of the NBER working paper 15965 entitled "A Cluster-Grid Projection Method: Solving Problems with High Dimensionality. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment(More)
This paper investigates how the assumption of quasi-geometric (hyperbolic) discounting affects the distributional implications of the standard one-sector neoclassical growth model with infinitely lived heterogeneous agents. The agents are subject to idiosyncratic shocks and face borrowing constraints. We confine attention to an interior Markov recursive(More)
The standard neoclassical growth model with quasi-geometric discounting is shown elsewhere (Krusell, P. and Smith, A., CEPR Discussion Paper No. 2651, 2000) to have multiple solutions. As a result, value-iterative methods fail to converge. The set of equilibria is however reduced if we restrict our attention to the interior (satisfying the Euler equation)(More)