This is a very interesting paper about gross worker flows over the lifecycle. From a computational point of view, it is a general equilibrium, life-cycle model with consumption and savings and labor market frictions.
Tomaz Cajner & İlhan Güner & Toshihiko Mukoyama, 2025.
“Gross Worker Flows over the Life Cycle,”
Journal of Money, Credit and Banking, Blackwell Publishing, vol. 57(4), pages 757-791, June.
The paper has a detailed numerical appendix which explains how the authors solved the model. Interesting details I have noted:
- The authors solve the minimization and general equilibrium together by adding the capital market equilibrium condition and government budget constraint as additional targets to be minimized. In the appendix they explain how they modify the loss function to account for the GE conditions.
- The model is big: they have many periods in the life cycle, N_j = 947
- Value function iteration. The author write “We linearly interpolate the
continuation value and solve for the optimal saving decision using the golden section search method”. - The grid for assets is fixed once and for all, but the grids for the shocks depend on some parameter values, so they change during the estimation loop.