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Managing Inequality over the Business Cycles: Optimal Policies with Heterogeneous Agents and Aggregate Shocks
1 : xavier ragot
SciencesPo
We solve for optimal Ramsey policies in heterogeneous-agent models with aggregate shocks. We provide a simple theory based on projection on the space of idiosyncratic histories, to present a finite-dimensional state-space heterogeneous agent models. This improves current algorithms for solving such models with aggregate shocks, and allows simulating easily optimal policies. We apply this methodology to the optimal provision of a public good over the business cycle, when households face time-varying unemployment risk.
