Computing Aggregate Fluctuations of Economies with Private Information

Marcelo Veracierto

No WP 2025-19, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: This paper introduces a general method for computing aggregate fluctuations in 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. The model is then linearized with respect to that vector. Applying the computational method to a Mirrlees RBC economy with known analytical solution recovers the solution perfectly well. This test provides significant confidence on the accuracy of the method.

Keywords: Computational methods; Heterogeneous agent; Business cycle; Private information (search for similar items in EconPapers)
JEL-codes: C63 D82 E32 (search for similar items in EconPapers)
Pages: 65
Date: 2025-08
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DOI: 10.21033/wp-2025-19

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