Problems in the Numerical Simulation of Models with Heterogeneous Agents and Economic Distortions
Federal Reserve Bank of St. Louise Working Paper No. 2009-036A
12 Pages Posted: 20 Aug 2009
Date Written: August 18, 2009
Our work has been concerned with the numerical simulation of dynamic economies with heterogeneous agents and economic distortions. Recent research has drawn attention to inherent difficulties in the computation of competitive equilibria for these economies: A continuous Markovian solution may fail to exist, and some commonly used numerical algorithms may not deliver accurate approximations. We consider a reliable algorithm set forth in Feng et al. (2009), and discuss problems related to the existence and computation of Markovian equilibria, as well as convergence and accuracy properties. We offer new insights into numerical simulation.
Keywords: heterogeneous agents, taxes, externalities, financial frictions, competitive equilibrium, computation, simulation
JEL Classification: C6, D5, E2
Suggested Citation: Suggested Citation