The role of agent heterogeneity on the demand-side in the DSGE framework

Heterogeneities, the differences between agents, firms and institutions, are common characteristics of economies, rich and poor. If heterogeneities are ubiquitous in economies, serious dynamic models used for policy analysis and forecasts should account for these. Common Dynamic Stochastic General Equilibrium (DSGE) models single out the behaviours of representative agents', and thus remain silent on how fiscal and monetary policy decisions affect economic inequalities.
We will investigate The role of agent heterogeneity on the demand-side in the DSGE framework.
By introducing a tractable model with heterogeneities, this thesis shall put forward a framework that will provide insights into the links between monetary and fiscal policy, heterogeneities in labour markets and financial markets, and economic inequality. The model shall provide evidence on whether heterogenous agent models can produce consistent results with the data, particularly about economic inequality. This thesis will introduce building blocks to innovate the heterogenous agent framework, formulating a model that captures agents with differing skills and access to financial goods.
Chapter 1 Question What does financial market heterogeneity mean for the effectiveness of monetary and fiscal policy?
It has been observed that some countries that focus on investing in output-producing assets have grown faster economically than countries that choose more liquid, yet far less important in the output-production process, investment vessels.
This chapter shall construct a model with households under the existence of fiscal and monetary authority and nominal rigidities. One household shall have access to invest savings into productive, output-producing assets, capturing long-term productive assets, and sell financial assets, assets unrelated to production, capturing short-term financial assets, to the other household. The other household invests savings into these financial, non-output-producing assets. An...