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New functionality: persistent shocks #19

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mnwhite opened this issue Feb 4, 2016 · 2 comments
Closed

New functionality: persistent shocks #19

mnwhite opened this issue Feb 4, 2016 · 2 comments

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@mnwhite
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mnwhite commented Feb 4, 2016

The current consumption-saving models assume that shocks are fully permanent or fully transitory. Must add a solver that allows for persistent (but not permanent) shocks, e.g. an AR(1) model of income. Requires tracking income as a second state variable, would likely use LinearInterpOnInterp1D.

@mnwhite
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mnwhite commented Jun 22, 2016

A version of this can be done with MarkovModel (e.g. the serially correlated permanent growth example; can make other examples), but this is also a good candidate for a contributor who wants to write a new model for HARK.

The main contribution is permanent income as a state variable during solution, rather than normalized out. This will be useful both for persistent income shocks and models where absolute dollars matter: multiple consumption goods, progressive income tax, etc.

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mnwhite commented Jul 13, 2016

I completed this in my own fork, will issue pull request shortly.

New file ConsPersistentShockModel has two models: an "explicit permanent income" model that is identical to ConsIndShock except that permanent income is tracked as a state variable explicitly rather than normalized out; and a "persistent shock" model that generalizes the permanent income process to an AR1 (in logs) rather than random walk. Latter model is identical to former model when PermIncCorr = 1.0.

Cubic spline consumption function and value function construction both work. Possible extension is a progressive income tax model.

@mnwhite mnwhite closed this as completed Jul 13, 2016
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