Skip to content!

July 12 - 13, 2023

Graduate Center Masterclasses

Heterogeneous Agent Macroeconomics: Methods and Applications


July 12 - 13, 2023
12 July: 9h30-17h15
13 July: 9h30-14h30


Anna J. Schwartz Room
Room 5.2.010
Mohrenstraße 58
10117 Berlin


Ralph Lütticke

The course provides participants with the tools to develop and analyze business cycle models with heterogenous agents. This class of models has become the new standard in the business cycle literature and allows to analyze the interaction of the business cycle and the distribution of consumption, income, and wealth.

The focus of the course is on numerical methods. Coding exercises in class are an important element of the course, such that participants should be able to apply the methods straight out of the class.


Students should ideally have some experience in numerical modelling (using MATLAB or the like). They should also have some basic knowledge of how to solve dynamic planning problems globally (at least using value function iteration).


Day 1

• Lecture 1

  • Theoretical Foundations: Consumption-Savings Problems
    • Incomplete markets, aggregate risk and approximate aggregation
  • Solving dynamic planning problems in partial equilibrium efficiently
    • Reminder on numerical basics

• Lecture 2

  • Stationary equilibria in models with incomplete markets
    • Bewley, Huggett, Aiyagari models
  • Perturbation theory
    • First and higher order perturbation
    • Automatic differentiation
    • Aggregate models

• Lecture 3

  • Dealing with aggregate risk in heterogeneous agent models
    • Krusell & Smith solution method
    • Reiter vs. MIT shock solution method
    • Bayer & Luetticke state space reduction

• Lecture 4

  • Estimation of heterogeneous agent models with aggregate risk
  • Adding nominal frictions to heterogeneous agent models

Day 2

• Lectures 5 & 6

  • Applications to monetary and fiscal policy
  • Application to Small Open Economy


The resources used include lecture slides, coding exercises with template solutions, and literature which will be provided.

About the instructor

Ralph Luetticke is a Professor of Economics at University of Tübingen and affiliated with the Centre for Economic Policy Research, the Centre for Macroeconomics, and the Stone Centre on Wealth Concentration, Inequality, and the Economy at University College London. His research studies the conduct of fiscal and monetary policy as well as the sources of business cycles with new tools that allow us to take household heterogeneity into account in models and data. His interests include Macroeconomics, Fiscal and Monetary Policy, Computational Methods, and Inequality.


If you want to join this short course, please register with the Graduate Center on a first-come, first-serve basis:


  • Masterclass Description