The optimum quantity of debt: Technical appendix

S. Rao Aiyagari, Ellen R. McGrattan

Research output: Contribution to journalArticle

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Abstract

We describe the numerical method used to compute equilibria in the economies studied by Aiyagari and McGrattan, The Optimum Quantity of Debt (Journal of Monetary Economics 1998). These economies have a large number of infinitely lived households whose saving behavior is influenced by precautionary saving motives and borrowing constraints. We apply the finite element method to compute households’ saving decisions and to compute the distribution of asset holdings. To verify that the method works well for our problems, we apply them to some related test problems with known solutions.

Original languageEnglish (US)
Pages (from-to)193-217
Number of pages25
JournalAnnals of Economics and Finance
Volume4
Issue number1
StatePublished - 2003

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