Thursday, 11 April, 2024 | 14:00 | Room 402 | Macro Research Seminar

Ralph Luetticke (University of Tübingen) "An Endogenous Gridpoint Method for Distributional Dynamics"

Prof. Ralph Luetticke

University of Tübingen, Germany

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Authors: Ralph Luetticke, Christian Bayer, Maximilian Weiss, Yannik Winkelmann

Abstract: The “histogram method” (Young, 2010) is the standard method for computing distributional dynamics in heterogeneous agent models, but is a linear operator. We develop an alternative method that captures nonlinearities of distribution functions by interpolating probability weights at grid points over optimally chosen (endogenous) points. The method retains the tractability and speed of a discretized histogram as part of the state space, but increases numerical efficiency already in the steady state and yields economically large differences with aggregate risk. We document this by studying a disaster-like capital destruction shock with a third-order solution using perturbation techniques.

JEL Classification: C63, E32
Keywords: Numerical Methods, Heterogeneous Agent Models, Linearization, Incomplete Markets