Repeated Transition Method and the Nonlinear Business Cycle with the Corporate Saving Glut

Hanbaek Lee

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a novel methodology to globally solve nonlinear dynamic stochastic general equilibrium models with high accuracy. The algorithm is based on the ergodic theorem: if a simulated path of the aggregate shock is long enough, all the possible equilibrium allocations are realized, enabling a complete characterization of the rationally expected future outcomes at each point on the path. The algorithm is applied to a heterogeneous-firm business cycle model where firms hoard cash as a buffer stock. Using the model, I analyze the state-dependent shock sensitivity of consumption over corporate cash stocks and provide empirical evidence.

Keywords: Nonlinear business cycle; heterogeneous agents; stochastic dynamic programming; monotone function; state dependence. (search for similar items in EconPapers)
JEL-codes: C63 D21 E32 (search for similar items in EconPapers)
Date: 2022-12
New Economics Papers: this item is included in nep-bec, nep-dge and nep-fdg
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https://mpra.ub.uni-muenchen.de/115887/1/MPRA_paper_115887.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/116023/1/MPRA_paper_116023.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/119931/1/MPRA_paper_116023.pdf revised version (application/pdf)

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