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Efficient Aggregation in Heterogeneous Agents Models with Bounded Rationality

Author

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  • Nikolaishvili, Giorgi

    (Wake Forest University, Economics Department)

  • Evans, David

    (University of Oregon)

Abstract

Simulations of heterogeneous agents models with boundedly rational agents and multiple markets in the style of Krusell and Smith (1997, 1998) require solving for market-clearing conditions at each period to determine temporary equilibria. Existing solution procedures can be computationally intensive, especially in settings with a high-dimensional state space and a large number of agents. We suggest a new method for approximating temporary equilibria in heterogeneous agents models that offers a speedup of multiple orders of magnitude compared to a conventional benchmark. We demonstrate the effectiveness of our procedure by applying it to a model with heterogeneous boundedly rational agents featuring a large idiosyncratic state space.

Suggested Citation

  • Nikolaishvili, Giorgi & Evans, David, 2025. "Efficient Aggregation in Heterogeneous Agents Models with Bounded Rationality," Working Papers 124, Wake Forest University, Economics Department.
    • Handle: RePEc:ris:wfuewp:0124
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    More about this item

    Keywords

    Heterogeneous agents; equilibrium approximation; policy function aggregation; market clearing;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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