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Heterogeneity in macroeconomic models: A review of theory and computation

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  • Julien Pascal

Abstract

This paper reviews the literature examining the consequences of heterogeneity in macroeconomic modeling, especially within the context of monetary and fiscal policy transmission. This review reveals that heterogeneity can significantly alter the transmission mechanisms of monetary policy in macroeconomic models and suggests possible advantages from collaboration between fiscal and monetary policies. The paper also provides a critical evaluation of various analytical and numerical methods to solve macroeconomic models with heterogeneity, underscoring the need for a careful methodological choice based on specific circumstances.

Suggested Citation

  • Julien Pascal, 2024. "Heterogeneity in macroeconomic models: A review of theory and computation," BCL working papers 185, Central Bank of Luxembourg.
    • Handle: RePEc:bcl:bclwop:bclwp185
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    File URL: https://www.bcl.lu/en/publications/Working-papers/185/BCLWP185.pdf
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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