Aggregating Heterogeneous-Agent Models with Permanent Income Shocks
Journal article, Peer reviewed
Published version
Permanent lenke
https://hdl.handle.net/11250/3045242Utgivelsesdato
2021Metadata
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Originalversjon
10.1016/j.jedc.2021.104185Sammendrag
I introduce a method for simulating aggregate dynamics of heterogeneous-agent models where log permanent income follows a random walk. The idea is to simulate the model using a counterfactual permanent-income-neutral measure which incorporates the effect that permanent income shocks have on macroeconomic aggregates. With the permanent-income-neutral measure, one does not need to keep track of the permanent-income distribution. The permanent-income-neutral measure is both useful for the analytical characterization of aggregate consumption-savings behavior and for simulating numerical models. Furthermore, it is trivial to implement with a few lines of code.