Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/184778
Authors: 
Fella, Giulio
Gallipoli, Giovanni
Pan, Jutong
Year of Publication: 
2017
Series/Report no.: 
Working Paper 827
Abstract: 
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.
Subjects: 
Numerical methods
finite state approximations
JEL: 
C63
Document Type: 
Working Paper
Social Media Mentions:

Files in This Item:
File
Size
629.79 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.