DP13890 Using the Sequence-Space Jacobian to Solve and Estimate Heterogeneous-Agent Models
|Author(s):||Adrien Auclert, Bence Bardoczy, Matthew Rognlie, Ludwig Straub|
|Publication Date:||July 2019|
|Keyword(s):||Computational Methods, General Equilibrium, Heterogeneous Agent, linearization|
|JEL(s):||C63, E21, E32|
|Programme Areas:||Monetary Economics and Fluctuations|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=13890|
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 and composition of sequence-space Jacobians-the derivatives of perfect-foresight equilibrium mappings between aggregate sequences around the steady state. We provide a fast algorithm for computing Jacobians for heterogeneous agents, a technique to substantially reduce dimensionality, a rapid procedure for likelihood-based estimation, a determinacy condition for the sequence space, and a method to solve 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.