This working paper combines the Parameterizing Expectations Approach developed by Marcet (1988) and Den Haan and Marcet (1990), and the approach proposed by Krusell and Smith (1998), to approximate the equilibrium of incomplete markets economies with aggregate uncertainty.

The algorithm is tested by solving a version of the economy in Krusell and Smith where shocks take values on a continuum. The results show that the combined algorithm is fast and accurate.