Working Paper: NBER ID: w26123
Authors: Adrien Auclert; Bence Bardczy; 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 Models; General Equilibrium; Impulse Responses; Computational Methods
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 |
|---|---|
| sequencespace jacobian method (C49) | reduces computational costs (C63) |
| sequencespace jacobian method (C49) | rapid estimation of general equilibrium impulse responses (D58) |
| sequencespace jacobian method (C49) | captures all relevant aspects of the model (C52) |
| sequencespace jacobian method (C49) | enables accurate recovery of the statespace law of motion (C32) |