Repeated Transition Method and the Nonlinear Business Cycle with the Corporate Saving Glut

Lee, Hanbaek (2022): Repeated Transition Method and the Nonlinear Business Cycle with the Corporate Saving Glut.

Abstract

This paper develops a novel methodology to globally solve nonlinear dynamic stochastic general equilibrium models with high accuracy. The algorithm is based on the ergodic theorem: if a simulated path of the aggregate shock is long enough, all the possible equilibrium allocations are realized, enabling a complete characterization of the rationally expected future outcomes at each point on the path. The algorithm is applied to a heterogeneous-firm business cycle model where firms hoard cash as a buffer stock. Using the model, I analyze the state-dependent shock sensitivity of consumption over corporate cash stocks and provide empirical evidence.

• Item Type: MPRA Paper
• Language: English
• Keywords: Nonlinear business cycle, heterogeneous agents, stochastic dynamic programming, monotone function, state dependence.
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

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