By the same authors

From the same journal

Computational accuracy and distributional analysis in models with incomplete markets and aggregate uncertainty

Research output: Contribution to journalArticle

Author(s)

Department/unit(s)

Publication details

JournalEconomics Letters
DateE-pub ahead of print - 29 May 2012
DatePublished (current) - Oct 2012
Issue number1
Volume117
Pages (from-to)276-279
Early online date29/05/12
Original languageEnglish

Abstract

This paper shows that grid-based numerical solutions to models with incomplete markets and aggregate uncertainty are sensitive to the number and placement of grid points in the aggregate asset holdings direction. Higher moments of the cross-sectional distribution of asset holdings can be particularly affected, which is important for welfare analysis. The paper recommends using grids that have few grid points for aggregate assets overall but are denser around the mean of the ergodic distribution of individual asset holdings. The fact that the accuracy of the approximation to decision functions can be much improved this way is captured by Den Haan’s (2010) dynamic Euler equation test but not by the traditionally used R2 statistic.

    Research areas

  • Incomplete markets, Aggregate uncertainty, Heterogeneous agents, Simulations, Numerical solutions

Discover related content

Find related publications, people, projects, datasets and more using interactive charts.

View graph of relations