Solution Methods for Macroeconomic Models

This course teaches key methods for solving modern macroeconomic models, including those able to account for agent heterogeneity. Participants will gain detailed theoretical knowledge and hands-on experience with linearization techniques, non-linear solution methods and approaches for solving heterogeneous agent models with and without aggregate uncertainty.

MATLAB free trial can be downloaded here.

For the tutorials, please bring your own laptop to all the sessions.

READING SUGGESTIONS 

Textbooks

• David DeJong, Chetan Dave (2011). Structural Macroeconometrics, 2nd Edition, Princeton University Press, Chapters 4-5.

• Heer, Maussner (2009). Dynamic General Equilibrium Modeling, 2nd Edition, Springer, Chapters 2, 6-8, 11.

• Miao (2020). Economic Dynamics in Discrete Time, 2nd Edition, MIT Press, Chapter 12.

Papers

• Algan, Allais, Den Haan, Rendahl (2014). “Solving and Simulating Models with Heterogeneous Agents and Aggregate Uncertainty,” Handbook of Computational Economics, Volume 3.

• Bayer, Luetticke (2020). “Solving Heterogeneous Agent Models in Discrete Time with Many Idiosyncratic States by Perturbation Methods,” Quantitative Economics, Volume 11.

• Krusell, Smith (1998). “Income and Wealth Heterogeneity in the Macroeconomy,” Journal of Political Economy, 106 (5).

• Rendahl (2025). “A Transparent Approach to Solving Linear Rational Expectation Models,” Economica.

• Sedlacek, Sterk (2017). “Growth Potential of Startups over the Business Cycle,” American Economic Review, 107 (10).

Notes and slides

Various experts, e.g.: Wouter den Haan, Jesus Fernandez-Villaverde, Karen Kopecky, Makoto Nakajima