The Unassuming Economist

From a paper by Julien Pascal:

“This paper provides a comprehensive review of the fast-expanding literature on household heterogeneity in macroeconomic models. It not only examines the main mechanisms through which household heterogeneity affects the transmission of monetary policy, but also offers a unified framework for understanding the main analytical and numerical approaches used to solve macroeconomic models with heterogeneity. These include limited-heterogeneity, history-truncation, and no-trade equilibria on the analytical side; forecasting-rule, linearization (state-space or sequence-space), and global methods on the numerical side. By highlighting the links and trade-offs among these approaches, the paper provides guidance for selecting appropriate solution techniques depending on the structure and purpose of the model.”