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Solving the incomplete market model with aggregate uncertainty using a perturbation method

par Kim, Sunghyun Henry;Kollmann, Robert ;Kim, Jinill
Référence Journal of economic dynamics & control, 34, 1, page (50-58)
Publication Publié, 2010-01

Article révisé par les pairs

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Résumé :

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. © 2009 Elsevier B.V. All rights reserved.