Arbeitspapier
Markov-chain approximations for life-cycle models
Non-stationary income processes are standard in quantitative life-cycle models, prompted by the observation that within-cohort income inequality increases with age. This paper generalizes Tauchen (1986) and Rouwenhorst's (1995) discretization methods to non-stationary AR(1) processes. We evaluate the performance of both methods in the context of a canonical finite-horizon, income-uctuation problem with a non-stationary income process. We find that the generalized Rouwenhorst's method performs extremely well even with a relatively small number of states.
- Language
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Englisch
- Bibliographic citation
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Series: Working Paper ; No. 827
- Classification
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Wirtschaft
Computational Techniques; Simulation Modeling
- Subject
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Numerical methods
finite state approximations
- Event
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Geistige Schöpfung
- (who)
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Fella, Giulio
Gallipoli, Giovanni
Pan, Jutong
- Event
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Veröffentlichung
- (who)
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Queen Mary University of London, School of Economics and Finance
- (where)
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London
- (when)
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2017
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Fella, Giulio
- Gallipoli, Giovanni
- Pan, Jutong
- Queen Mary University of London, School of Economics and Finance
Time of origin
- 2017
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