The Importance of the Number of Different Agents in a Heterogeneous Asset-Pricing Model

Topics:
Investment and Capital Markets
Tags:
Agent,
Business Operations,
Center For Financial Studies,
Real Estate,
Type
Source:
Center for Financial Studies

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Overview: Models with heterogeneous agents and incomplete markets often only have two types of agents to limit the computational complexity. The question arises whether equilibrium models with a realistic number of types have the same implications as models with a small number of types. In the asset-pricing model considered in this paper, several properties depend crucially on the number of types. For example, in the economy with only two types' interest rates respond to "idiosyncratic" income shocks which makes it easier to smooth consumption.

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Format: PDF | Size: 232KB | Date: Aug 2002 | Pages: 25

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