Abstract:
Dynamic Stochastic General Equilibrium (DSGE) models are the workhorse of modern macroeconomics. They are used to study the effects of monetary and fiscal policy, and to understand the sources of business cycle fluctuations. However, the standard DSGE models are not able to explain the observed heterogeneity in the data. The Heterogenous Agent New Keynesian (HANK) models are an extension of the standard DSGE models that incorporate heterogeneity in the data. The HANK models are able to explain the observed heterogeneity in the data, but they are computationally expensive. In this thesis, we develop a HANK model for monetary and fiscal policy analysis. We use the model to study the effects of monetary and fiscal policy shocks on the economy. We also perform a sensitivity analysis of the model to understand the effects of changes in the parameters of the model on the results.
