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

See all articles by Adrian Peralta-Alva

Adrian Peralta-Alva

Federal Reserve Bank of St. Louis

Manuel Santos

University of Miami - School of Business Administration - Department of Economics

Date Written: August 18, 2009

Abstract

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

Peralta-Alva, Adrian and Santos, Manuel, Problems in the Numerical Simulation of Models with Heterogeneous Agents and Economic Distortions (August 18, 2009). Federal Reserve Bank of St. Louise Working Paper No. 2009-036A, Available at SSRN: https://ssrn.com/abstract=1457036 or http://dx.doi.org/10.2139/ssrn.1457036

Adrian Peralta-Alva (Contact Author)

Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

HOME PAGE: http://research.stlouisfed.org/econ/peralta-alva/index.html

Manuel Santos

University of Miami - School of Business Administration - Department of Economics ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States

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