Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/298807 
Year of Publication: 
2024
Series/Report no.: 
ECONtribute Discussion Paper No. 311
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
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.
Subjects: 
Numerical Methods
Distributions
Heterogeneous Agent Models
Linearization
JEL: 
C46
C63
E32
Document Type: 
Working Paper

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