They key conceptual new element in this problem set is finding general equilibrium.
In terms of how to solve for equilibrium, two crucial & related steps are involved:
- We need to find the ergodic distribution that results when everyone in the economy follows the policy function, but gets hit by different idiosyncratic shocks.
- We need to find the asset price that clears the market
The problem set + starter code will walk you through these steps.
Yaobin's Comments:
My answers to all questions (1-4) can be found in the .m file named "PS3_Huggett_Yaobin".
Answer to question 1 about defining the problem, state and control variables etc. are typed as comment lines in the .m file.
For question 2, I report the steady state price q* in the matlab Command Window and draw the wealth distribution.
For quesrion 3, Gini Coefficients for wealth and earnings are reported in the matlab Command Window. I also draw the Lorenz curves.
As for the Extra credit question, part of my answer is typed as comment lines in the .m file. And I report my answers to the fraction of households that benefit from the plan and the economy-wide welfare gain in the matlab Command Window. And finally, I draw the consumption equivalent graph.
There are two additional .m files named "hline" and "vline" in my submission. They are just functions help me to drwa horizontal andd vertical reference lines on graphs.