Working Paper: CEPR ID: DP13890
Authors: Adrien Auclert; Bence Bardoczy; Matthew Rognlie; Ludwig Straub
Abstract: We propose a general and highly efficient method for solving and estimating general equilibrium heterogeneous-agent models with aggregate shocks in discrete time. Our approach relies on the rapid computation of sequence-space Jacobians—the derivatives of perfect-foresight equilibrium mappings between aggregate sequences around the steady state. Our main contribution is a fast algorithm for calculating Jacobians for a large class of heterogeneous-agent problems. We combine this algorithm with a systematic approach to composing and inverting Jacobians to solve for general equilibrium impulse responses. We obtain a rapid procedure for likelihood-based estimation and computation of nonlinear perfect-foresight transitions. We apply our methods to three canonical heterogeneous-agent models: a neoclassical model, a New Keynesian model with one asset, and a New Keynesian model with two assets.
Keywords: heterogeneous agent; general equilibrium; computational methods; linearization
JEL Codes: C63; E21; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| changes in the sequence of real interest rates (E43) | changes in aggregate consumption (E20) |
| aggregate shocks (E10) | behavior of heterogeneous agents in general equilibrium models (D52) |
| jacobian mapping from changes in the sequence of real interest rates (E43) | aggregate effects of interest rate changes on consumption (E21) |