Applying the explicit aggregation algorithm to heterogeneous agent models in continuous time

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This paper applies the explicit aggregation (XPA) algorithm to the standard heterogeneous agent model with aggregate uncertainty in continuous time. We find that the XPA algorithm is faster in solving the model than the Krusell–Smith algorithm, because the XPA algorithm does not rely on simulations within the algorithm to solve the model. The XPA algorithm is more accurate than the perturbation method when aggregate uncertainty is large.