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References
A detailed discussion of the solution of heterogeneous agents models can be found in RÃos-Rull (1995). Further solution strategies and computational methods for heterogeneous agents models can be found in RÃos-Rull (1999).
See Stokey and Lucas (1989) p. 23 f. for further details.
This assumption simplifies the analysis and is rather consistent with the fact that unskilled workers cannot become skilled within the period of one or two quarters. For example, a study which concentrates on the schooling decision of workers within an overlapping generations (OLG) framework can be found in Heckman, Lochner, and Taber (1998).
Please note that there are two ways to solve this kind of intertemporal models: the approach via the value function as in Stokey and Lucas (1989), or directly via the Lagrange function as proposed by Chow (1997). In this book I follow the latter approach.
Stokey and Lucas (1989) describe the firm’s problem as a sequence of one period maximization problems. Cf. Stokey and Lucas (1989) p. 25.
Cf. Stokey and Lucas (1989) p. 25.
In general, Collard and Juillard (2001) propose higher-order Taylor series approximations. For computational reasons and because of the fact that second-order approximations do not change the results, the first-order approximation is chosen.
Cf. Heckman, Lochner, and Taber (1998) p. 26.
A notable exception is Acemoglu (1999), where the determinants of wage inequality are combined with the assumption of imperfect labor markets.
The counter-cyclical correlation of output and the wage spread is also reported by Skaksen and Sorensen (2005), who develop an empirical model with capital-skill complementarity for the U.S. and Denmark.
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(2007). Inequality and Employment: Basic Framework. In: The Employment Effects of Technological Change. Lecture Notes in Economics and Mathematical Systems, vol 593. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-69956-9_4
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