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Title: Comparison of Solutions to the Incomplete Markets Model with Aggregate Uncertainty

Author(s): Wouter Den Haan

Publication Date: October 2008

Keyword(s): approximations and numerical solutions

Programme Area(s): International Macroeconomics

Abstract: This paper compares numerical solutions to the model of Krusell and Smith (1998) generated by different numerical algorithms. The algorithms have very similar implications for the correlations between different variables. Larger differences are observed for (i) the unconditional means and standard deviations of individual variables, (ii) the behavior of individual agents during particularly bad times, (iii) the volatility of the per capita capital stock, and (iv) the behavior of the higher-order moments of the cross-sectional distribution. For example, the two algorithms that differ the most from each other generate individual consumption series that have an average (maximum) difference of 1.6% (11.4%). Several outcomes of this comparison project should be useful in using these and other algorithms in future work.

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Bibliographic Reference

Den Haan, W. 2008. 'Comparison of Solutions to the Incomplete Markets Model with Aggregate Uncertainty'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7019