Heterogeneous Agent Models

Heterogeneous agent models have become central to modern macroeconomic research, often replacing the representative agent framework. However, what is core for these frameworks is the use of microfoundations that involve optimizing behavior. The strength of heterogeneous agent models lies in their ability to address questions where heterogeneity is essential--for instance, examining renters versus homeowners, the old versus the young, or the rich versus the poor. While advances in computational power have allowed these models to replicate observed wealth and income distributions effectively, much remains to be understood about the bottom of the income and wealth distributions.