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Computing Aggregate Fluctuations of Economies with Private Information

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  • Marcelo Veracierto

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.

Suggested Citation

  • Marcelo Veracierto, 2025. "Computing Aggregate Fluctuations of Economies with Private Information," Working Paper Series WP 2025-19, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:101803
    DOI: 10.21033/wp-2025-19
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    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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