The objective of the course is to introduce the modeling of heterogeneous agents economies, learn about economies with incomplete markets and uninsurable risk. The typical agent in our analysis will be a household or a worker, though we will devote some attention also to studying the behavior of firms and governments in similar settings.
In the first part of the course, the student will familiarize with a few highly influential models of incomplete markets. Workers face idiosyncratic risk and, crucially, have no access to a full set of Arrow-Debreu securities to insure against the risk. Students will learn how to characterize the stationary equilibrium in these economies and review some of the numerical methods used to solve heterogeneous agents economies with incomplete markets. Computational efficiency is key in solving this class of models. The second part of the course presents various alternatives to solve this class of model. It also discusses how the model can be brought to the data. Finally the course studies the behavior of these models in the presence of aggregate risk.