Computing Equilibria of Stochastic Heterogeneous Agent Models Using Decision Rule Histories
Posted: 27 Apr 2020
Date Written: February, 2020
Abstract
This paper introduces a general method for computing equilibria with heterogeneous agents and aggregate shocks that is particularly suitable for economies with private information. Instead of the cross-sectional distribution of agents across individual states, the method uses as a state variable a vector of spline coefficients describing a long history of past individual decision rules. Applying the computational method to a Mirrlees RBC economy with known analytical solution recovers the solution perfectly well. This test provides considerable confidence on the accuracy of the method.
Keywords: Computational methods, heterogeneous agents, business cycles, private information
Suggested Citation: Suggested Citation