Macroeconomic and heterogenous agents
Title: Macroeconomic and heterogenous agents
SNIC Project: SNIC 2021/5-159
Project Type: SNIC Medium Compute
Principal Investigator: Kieran Larkin <kieran.larkin@iies.su.se>
Affiliation: Stockholms universitet
Duration: 2021-04-01 – 2022-04-01
Classification: 50201
Homepage: http://www.kieranlarkin.co.uk
Keywords:

Abstract

This project covers my research agenda understanding the role of household (and to a lesser extent firm) heterogeneity in understanding aggregate macroeconomic dynamics. This is a very important literature in macroeconomics and one that continues to generate new and important research ideas. The three strands of the project are outlined below: Heterogeneity and the Great Recession: What factor led to the severity of the Great Recession and what can we learn from heterogenous household behaviour during this episode. In particular what shocks were important from the household perpective and how did the conditions prior to the recession impact its severity. This strand of the project is the most advanced and mainly contains work close to completion. Within this strand I am researching the use of car expenditures for understanding household behaviour, the role of credit shocks in driving inactivity in the housing market and the relationship with labor market sorting and asset market allocations and how this can effect the strength of the response of consumption to aggregate shocks. How do households respond to a pandemic recession: The Covid recession was very different to prior episodes in that the cause is very clear. How did households respond during 2020 and what does their behaviour tell us about their updating of information on the scale, magnitude and length of the economic impact of lockdown policies and reduced interactions designed to minimize exposure to the virus. How non-linear is the economy? Many macro model use linerisation techiques to enable faster computation. Is this a reasonable assumption or does it generate counterfactual predictions. What elements of non-linearity are most important for understanding aggregate dynamics and how do these derive for household and firm heterogeneity. The project includes my previous submission to SNIC and presents an expanded research agenda. That project Ss cars and Great Recession falls within the first strand "Heterogeneity and the Great Recession". That piece of research is close to completion but require additional resources to finalise the manuscript. The broader reearch agenda has similar computing requirement using similar techniques although I envisage more resource requirements in the future as I attempt to solve models of greater ambition and thus greater computing resource requirements.