English, Article, Journal or magazine article edition: Applying Perturbation Methods to Incomplete Market Models with Exogenous Borrowing Constraints Henry Kim; Jinill Kim; Robert Kollmann

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Bookmark: http://trove.nla.gov.au/version/201071
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Applying Perturbation Methods to Incomplete Market Models with Exogenous Borrowing Constraints
Author
  • Henry Kim
  • Jinill Kim
  • Robert Kollmann
Physical Description
  • preprint
Notes
  • This paper solves an incomplete market model with infinite number of agents and exogenous borrowing constraints described in den Haan, Judd and Juillard (2004). We apply the idea of “barrier methods” to convert optimization problem with borrowing constraints as inequalities into a problem with equality constraints, and the converted model is solved by a second-order perturbation method. The simulation results of impulse responses and second moments match the standardized features of incomplete market models. Accuracy of the solution is in a reasonable range but significantly decreases when the economy is near the borrowing limit or moves away from the steady state.
  • perturbation, barrier method, borrowing constraint, incomplete market, accuracy.
  • RePEc:tuf:tuftec:0504
Language
  • English
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