Working Paper

Computing Equilibria of Stochastic Heterogeneous Agent Models Using Decision Rule Histories

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: private information; business cycles; heterogeneous agents; Computational methods;

JEL Classification: C63; E27; E32;

https://doi.org/10.21033/wp-2020-05

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 2020-02-01

Number: WP 2020-05