Solving the incomplete markets model with aggregate uncertainty using explicit aggregation

Approximate dynamic programming with post-decision states as a solution method for dynamic economic models

“…12 -iii. Initialize the aggregation method states using the Krusell and Smith (1998) algorithm or the explicit aggregation method (Den Haan and Rendahl, 2010). …”

Assessing the accuracy of the aggregate law of motion in models with heterogeneous agents

“…Algorithm and results: The example is from den Haan and Rendahl (2009), who show that the aggregate law of motion can be obtained by explicit aggregation of the individual policy rule. For explicit aggregation to work the individual policy rule has to be linear in the coefficients of the monomials of the individual state variables.…”

“…Because of the borrowing constraint, the individual policy rule of the unemployed agent in the Krusell-Smith economy has a kink and it would be costly to represent it as a function with the required functional form. In the first algorithm considered in den Haan and Rendahl (2009), auxiliary policy rules for the unemployed and employed agent are specified that are linear in the individual capital levels. From these den Haan and Rendahl (2009) derive an aggregate law of motion for the capital stock of the unemployed (K u ) and the employed (K e ) agents.…”

“…In the first algorithm considered in den Haan and Rendahl (2009), auxiliary policy rules for the unemployed and employed agent are specified that are linear in the individual capital levels. From these den Haan and Rendahl (2009) derive an aggregate law of motion for the capital stock of the unemployed (K u ) and the employed (K e ) agents. The R 2 's are equal to 0.999973 and 0.999997 for K u and K e , respectively.…”

Solving the incomplete markets model with aggregate uncertainty using parameterized cross-sectional distributions

“…2 Den Haan and Rendahl (2009) show that aggregation without explicit distributional assumptions is possible when the individual policy functions are linear in the coefficients. They implicitly obtain information about the distribution by approximating auxiliary policy rules.…”