ECON 7330 - [Heterogeneous Agent Models]

Fall (weeks 8-14). Next Offered: 2019-2020. 2 credits. Student option grading.

Staff.

In this course, we will study economies in which households are ex-ante heterogeneous in productivity. These models are pertinent to the study of wealth inequality, optimal taxation, and the welfare cost of business cycles. We begin the course by studying aggregation theorems in complete market economies that ensure the existence of a representative agent. We then move to models of incomplete markets where agents can only save via single risk-free bond and are only able to borrow up to a pre-determined debt limit. We characterize the decision problem faced by the individual; describe the stationary equilibrium; and then study the incomplete markets model with aggregate risk (i.e., business cycles). We will relate the calibration and predictions of these models to findings from popular survey data sets, such as the PSID and the CEX. In addition to acquiring familiarity with heterogeneous agent models, an important objective of this course will be for students to gain facility with the computational methods necessary for performing quantitative research in macroeconomics.