Wouter J. den Haan - LSE Macroeconomics Summer Courses

Macroeconomics Summer Courses

#2 Advanced Tools: Solving and estimating advanced macroeconomic models


  • knowledge about dynamic models, e.g., know what an Euler and a Bellman equation are
  • Knowledge on programming with Matlab
  • Knowledge on solving dynamic models with a representative agent like Dynare and value function iteration
  • Knowledge of the Kalman filter

Course outline 2017:

We are planning to change the content of the program somewhat relative to what was taught in 2016. Below you find what we will definitely cover.

Two days - Solving and simulating models with heterogeneous agents

  • Overview: We will look at popular algorithms used to solve models with heterogeneous agents and with aggregate risk. We will go through their implementation and discuss their strengths and weaknesses. The pioneering algorithm of Krusell and Smith (1998) is often reliable, but it is also quite slow and we will discuss improvements. In particular, we will discuss how to efficiently compute a stochastic simulation which avoids sampling uncertainty, and we will discuss alternative techniques which avoids simulation all together. We will discuss ways to impose market clearing, which in some applications is a non-trivial and important issue. we will teach you certain "tricks" to deal with this. We will also discuss how to deal with portfolio problems, asset pricing, and the introduction of money in these types of models. Lastly, we will discuss how to exploit linearization techniques when issues like the zero lower bound are present.
  • Topics:
    • Simulation and distributions
    • Krusell & Smith algorithm to solve models with heterogeneous agents and aggregate uncertainty
    • Avoiding sampling uncertainty
    • Xpa algorithm to solve models with heterogeneous agents aggregate uncertainty
    • Obtaining the ergodic distribution quickly (without simulating) as the Eigenvector of the matrix in the transition equation.
  • Applications & exercises - Monday and Tuesday: TBA, (last year we asked students to solve a simple equilibrium models with rational heterogenous agents and students were asked to compare properties of this more complex model with the representative agent equivalent).

Two days - Models with occassionally binding constraints and continuous-time models

  • Overview: Most macroeconomic analysis takes place in discrete time. But some problems are better dealt with in continuous time. These two days we focus on continuous-time models and explore numerical algorithms to solve them. During these days, we will discuss how to exploit linearization techniques in a smart way and deal with occasionally binding constraints such as the zero-lower-bound in monetary models.
  • Topics:
    • Continuous-time models
    • Algorithms to solve models in continuous time
    • Models with occassionally binding constraints.
    • Zero-lower-bound models and algorithms
  • Applications & exercises - Tuesday: TBA, (but probably an excersize where you are asked to use linearization tools to solve models in which the zero lower bound is binding and a continuous-time problem)

One day - Advanced empirical techniques

  • Overview: It is very likely that we will do more continuous time. If not, then we will do advanced empirical techniques such as time-varying VARs


Detailed info for courses: Administrative stuff: Links:

Wouter den Haan
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