Computing Equilibria of Stochastic Heterogeneous Agent Models Using Decision Rule Histories

Posted: 27 Apr 2020

See all articles by Marcelo Veracierto

Marcelo Veracierto

Federal Reserve Bank of Chicago - Research Department

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

Veracierto, Marcelo, Computing Equilibria of Stochastic Heterogeneous Agent Models Using Decision Rule Histories (February 2020). FRB of Chicago Working Paper No. WP 2020-05, Available at SSRN: https://ssrn.com/abstract=3584777

Marcelo Veracierto (Contact Author)

Federal Reserve Bank of Chicago - Research Department ( email )

230 South LaSalle Street
Chicago, IL 60604-1413
United States
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