An Endogenous Gridpoint Method for Distributional Dynamics

Christian Bayer, Ralph Luetticke, Maximilian Weiss () and Yannik Winkelmann ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: The “histogram method” (Young, 2010), while the standard approach for analyzing distributional dynamics in heterogeneous agent models, is linear in optimal policies. We introduce a novel method that captures nonlinearities of distributional dynamics. This method solves the distributional dynamics by interpolation instead of integration, which is made possible by making the grid endogenous. It retains the tractability and speed of the histogram method, while increasing numerical efficiency even in the steady state and producing significant economic differences in scenarios with aggregate risk. We document this by studying aggregate investment risk with a third-order solution using perturbation techniques.

Keywords: Numerical Methods; Distributions; Heterogeneous Agent Models; Linearization (search for similar items in EconPapers)
JEL-codes: C46 C63 E32 (search for similar items in EconPapers)
Pages: 21
Date: 2024-05
New Economics Papers: this item is included in nep-cmp and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: An Endogenous Gridpoint Method for Distributional Dynamics (2024)
Working Paper: An Endogenous Gridpoint Method for Distributional Dynamics (2024)
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