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mnwhite avatar mnwhite commented on May 14, 2024

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 avatar mnwhite commented on May 14, 2024

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.

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