This paper develops a method to compute second-order perturbations of discretetime heterogeneous agent models. It addresses the three main tasks to make secondorder approximations tractable: state reduction, generating sufficient smoothness, and fast computation of the quadratic terms in the...

This paper develops a method to compute second-order perturbations of discretetime heterogeneous agent models. It addresses the three main tasks to make secondorder approximations tractable: state reduction, generating sufficient smoothness, and fast computation of the quadratic terms in the...

The paper presents a new method to solve DSGE models with a great number of heterogeneous agents. Using tools from systems and control theory, it is shown how to reduce the dimension of the state and the policy vector so that the reduced model approximates the original model with high precision....

The paper presents a new method to solve DSGE models with a great number of heterogeneous agents. Using tools from systems and control theory, it is shown how to reduce the dimension of the state and the policy vector so that the reduced model approximates the original model with high precision....