Markov-chain approximations for life-cycle models
G Fella, G Gallipoli, J Pan - Review of Economic Dynamics, 2019 - Elsevier
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), Adda and Cooper (2003), and Rouwenhorst's (1995)
discretization methods to non-stationary AR (1) processes. We evaluate the performance of
these methods in the context of a canonical life-cycle, income-fluctuation problem with a non-
stationary income process. We also examine the case in which innovations to the persistent …
by the observation that within-cohort income inequality increases with age. This paper
generalizes Tauchen (1986), Adda and Cooper (2003), and Rouwenhorst's (1995)
discretization methods to non-stationary AR (1) processes. We evaluate the performance of
these methods in the context of a canonical life-cycle, income-fluctuation problem with a non-
stationary income process. We also examine the case in which innovations to the persistent …
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