Exactly Solved Economies with Heterogeneity

25 Pages Posted: 8 Feb 2019 Last revised: 21 Mar 2019

See all articles by Jules H. van Binsbergen

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Christian C. Opp

University of Rochester - Simon Business School

Date Written: January 17, 2019

Abstract

We propose a novel modeling approach for general equilibrium economies with persistent heterogeneity that yields exact solutions. This is an important advancement relative to previous approaches where approximations are necessary, either by summarizing the distributional state space with a fixed number of moments or, alternatively, by perturbing the problem around a given fixed point for which the solution is known. As our approach does not impose any restriction on the shape of the state variable distribution, it can also be used to evaluate the conditions under which previous solution methods are likely to succeed.

Keywords: general equilibrium models, persistent heterogeneity, exact solutions, occasionally binding constraints, non-linearities

Suggested Citation

van Binsbergen, Jules H. and Opp, Christian C., Exactly Solved Economies with Heterogeneity (January 17, 2019). Available at SSRN: https://ssrn.com/abstract=3323516 or http://dx.doi.org/10.2139/ssrn.3323516

Jules H. Van Binsbergen

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen

Christian C. Opp (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

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