Essays On Macroeconomic Policies In Heterogeneous Agent Models
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Essays On Macroeconomic Policies In Heterogeneous Agent Models
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Author : Alaïs Martin-Baillon
language : en
Publisher:
Release Date : 2021
Essays On Macroeconomic Policies In Heterogeneous Agent Models written by Alaïs Martin-Baillon and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with categories.
It is now recognized that the heterogeneity of economic agents plays a crucial role in understanding the fluctuations of an economy. The different chapters of my thesis serve the same question: How does heterogeneity changes the way economic policies should be conducted? Today, heterogeneous-agent macroeconomics is developing in several directions, each shedding different light on the problems we face as economists. My thesis is at the confluence of the different facets of this field. The first chapter of my thesis, participates in the heterogeneous agent macroeconomics that derives analytical solutions in reduced-heterogeneity models. I study how governments should increase or decrease taxes on firms over the business cycle. I show that taking into account firms heterogeneity greatly changes tax policy recommendations. The second chapter of my thesis is part of quantitative heterogeneous agent macroeconomics. We study whether monetary policy should use its ability to redistribute wealth among heterogenous households to achieve its objectives. The third chapter of my thesis participates in field that uses micro data to understand macroeconomics and to design public policies. I estimate firms' propensities to invest to better understand how economic policies can vary firms' investment by varying their income.
Essays In Heterogeneous Agent Macroeconomics
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Author : Nobuhide Okahata
language : en
Publisher:
Release Date : 2021
Essays In Heterogeneous Agent Macroeconomics written by Nobuhide Okahata and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with Macroeconomics categories.
In these essays, I study the implications of macroeconomic policies under the environment with rich heterogeneities of economic agents. The analyses in these essays highlight that income and wealth inequality among agents could change the responses of macroeconomic policies and large aggregate shocks from those in the representative agent models. These results could modify our understanding of economic dynamics and the effect of macroeconomic policies. As an illustration, I focus on the monetary policy in a closed economy model and capital controls in an open economy model. I also develop a new nonlinear and global numerical solution method to analyze a class of heterogeneous-agent macroeconomic models. In the first chapter, ''An Alternative Solution Method for Continuous-Time Heterogeneous Agent Models with Aggregate Shocks'', I propose an alternative solution method for continuous-time heterogeneous agent models with aggregate shocks by extending the Backward Induction method developed initially for discrete-time models by Reiter (2010). The existing methods commonly used in the literature essentially rely on the local linearization and are only applicable to the problems where certainty equivalence with respect to aggregate shocks holds. On the other hand, the proposed method is nonlinear and global with respect to both idiosyncratic and aggregate shocks and thus suitable to investigate models where large aggregate shocks exist or nonlinearity matters. I apply this method to solve a Krusell and Smith (1998) economy and evaluate its performance along two dimensions: accuracy and computation speed. I find that the proposed method is accurate even with large aggregate shocks and high curvature without surrendering computation speed (the baseline economy is solved within a few seconds). This new method is also applied to a model with recursive utility and an Overlapping Generations (OLG) model, and it is able to solve both models quickly and accurately. In the second chapter, ''Consumption Inequality and Monetary Policy in a Heterogeneous-Agent New Keynesian Model'', I consider a continuous-time heterogenous-agent New Keynesian model with the wealth effect of the labor supply and study quantitative implications of additional insurance mechanisms available to the households. Our numerical experiment illustrates cross-sectional consumption inequality increases after a contractionary monetary policy shock which is consistent with the previous empirical result while it contradicts with predictions of the model without the wealth effect of the labor supply. Furthermore, consumption response to contractionary monetary policy shock is dampened, and a cross-sectional average of utilities decreases while the opposite is true in the model without wealth effect. These results suggest that propagation of monetary policy shock to the aggregate variables and welfare depends critically on additional insurance instruments available to agents. The third chapter, ''Capital Controls under Income Heterogeneity'', studies the welfare implication of capital controls under the small open economy model with the idiosyncratic income risks and the borrowing constraints. A calibrated model computes the change in welfare for different levels of capital controls. Compared to the recent studies, welfare gain of capital controls becomes small under agent income heterogeneity. For the economy with low borrowing capacity, capital controls become more effective compared to the baseline case.
Essays On Macroeconomic Policy With Heterogeneous Agents And Digital Assets
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Author : Antzelos Kyriazis
language : en
Publisher:
Release Date : 2023
Essays On Macroeconomic Policy With Heterogeneous Agents And Digital Assets written by Antzelos Kyriazis and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023 with categories.
This dissertation has three chapters. In the first chapter, I build a three-agent preferred-habitat New Keynesian (PHANK) model. I show that the fiscal multiplier decreases in the presence of countercyclical QE policies after a fiscal expansion since countercyclical QE implies that the central bank sells government bonds, leading to higher expected returns on these bonds, which in turn incentivizes the bondholders to save more. However, since bondholders save more, they consume less, and as a result, consumption inequality between the savers and the non-savers falls, but wealth inequality increases. The qualitative results are similar in a medium-scale heterogeneous agents New Keynesian (HANK) model. In the three-agent model, I also solve for the optimal fiscal and QE policies at the zero lower bound, and I find that both are expansionary. The optimal increase in central bank asset purchases allows the government to increase government spending by less relative to the case where QE follows a countercyclical rule, so lower tax revenues are needed. In the second chapter, I study how US QE programs affect the US economy and the emerging market economies regarding their macro aggregates and asset prices. First, using Bayesian VAR models, I find that expansionary QE has positive and statistically significant effects in the US economy and the emerging market economies; real GDP, real investment, the price level, and asset prices rise. However, in emerging market economies, the currencies appreciate, the current account-to-GDP ratios deteriorate, the money supply increases, and the government bond yields increase. Then, I build a two-country HANK model that matches the empirical responses. Through the model, I examine how wealth inequality evolves both in the US economy and in the emerging market economy after a positive QE shock. Wealth inequality increases in the short run but decreases over the medium run in both countries. Also, I study the effects of policies that aim to reduce the leverage in the financial sector of the emerging market economy, such as capital controls, and I find that this policy indeed reduces the capital flows and leverage. However, economic activity also falls, and the welfare effects are mixed across households.The last chapter resulted from my strong interest in digital assets that emerged during my last year in the program. In this chapter, which results from collaborative work with Iason Ofeidis, Georgios Palaiokrassas, and Leandros Tassiulas, we examine the effects of unexpected changes in US monetary policy on digital asset returns, and on DeFi-related variables such as borrowing rates, outstanding debt, and TVL. We also examine the effects that the FOMC statement releases and the Minutes releases have on the volatility of digital asset returns. Finally, we examine how DeFi activity evolves around the FOMC announcements. The results from this chapter show first that the returns on digital assets are significantly affected by the unexpected part of the FOMC announcements. The volatility of the returns is also significantly affected by the FOMC releases but less significantly affected by the Minutes releases. Second, the DeFi-related variables are also affected by unexpected changes in monetary policy. Lastly, we find that the most significant spikes in DeFi activity occur on the FOMC announcement days or days very close to the announcement days.
Essays On Macroeconomic Policies And Household Heterogeneity
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Author : Gergő Motyovszki
language : en
Publisher:
Release Date : 2021
Essays On Macroeconomic Policies And Household Heterogeneity written by Gergő Motyovszki and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with Macroeconomics categories.
This thesis is composed of three independent chapters, but all centered around the broader topic of how macroeconomic policies interact with various aspects of household heterogeneity. Monetary Policy and Inequality under Labor Market Frictions and Capital-Skill Complementarity We provide a new channel through which monetary policy has distributional consequences at business cycle frequencies. We show that an unexpected monetary easing increases labor income inequality between high and less-skilled workers. In particular, this effect is prominent in sectors intensive in less-skilled labor, that exhibit high degree of capital-skill complementarity (CSC) and are subject to matching inefficiencies. To rationalize these findings we build a New Keynesian DSGE model with asymmetric search and matching (SAM) frictions across the two types of workers and CSC in the production function. We show that CSC on its own introduces a dynamic demand amplification mechanism: the increase in high-skilled employment after a monetary expansion makes complementary capital more productive, encouraging a further rise in investment demand and creating a multiplier effect. SAM asymmetries magnify this channel. Monetary-Fiscal Interactions and Redistribution in Small Open Economies Ballooning public debts in the wake of the covid-19 pandemic can present monetary-fiscal policies with a dilemma if and when neutral real interest rates rise, which might arrive sooner in emerging markets: policymakers can stabilize debts either by relying on fiscal adjustments (AM-PF) or by tolerating higher inflation (PM-AF). The choice between these policy mixes affects the efficacy of the fiscal expansion already today and can interact with the distributive properties of the stimulus across heterogeneous households. To study this, I build a two agent New Keynesian (TANK) small open economy model with monetary-fiscal interactions. Targeting fiscal transfers more towards high-MPC agents increases the output multiplier of a fiscal stimulus, while raising the degree of deficitfinancing for these transfers also helps. However, precise targeting is much more important under the AM-PF regime than the question of financing, while the opposite is the case with a PM-AF policy mix: then deficit-spending is crucial for the size of the multiplier, and targeting matters less. Under the PM-AF regime fiscal stimulus entails a real exchange rate depreciation which might offset "import leakage" by stimulating net exports, if the share of hand-to-mouth households is low and trade is price elastic enough. Therefore, a PM-AF policy mix might break the Mundell-Fleming prediction that open economies have smaller fiscal multipliers relative to closed economies. Weak Wage Recovery and Precautionary Motives after a Credit Crunch During the economic recovery following the financial crisis many advanced economies saw subdued wage dynamics, in spite of falling unemployment and an increasingly tight labour market. We propose a mechanism which can account for this puzzle and work against usual aggregate demand channels. In a heterogeneous agent model with incomplete markets we endogenize uninsurable idiosyncratic risk through search-and-matching (SAM) frictions in the labour market. In this setting, apart from the usual precautionary saving behaviour, households can self-insure also by settling for lower wages in order to secure a job and thereby avoid becoming borrowing constrained. This channel is especially pronounced for asset-poor agents, already close to the constraint. We introduce a credit crunch into this framework modelled as a gradual tightening of the borrowing constraint (and utilizing a continuous time approach, known as HACT). The perfect foresight transition dynamics feature falling wages despite a tightening labour market and expanding employment. As households suddenly find themselves closer to the borrowing constraint, the increased precautionary motive drives them to accept lower wages in the bargaining process, while firms respond to this by posting more vacancies, leading to a tighter labour market and falling unemployment. If the household deleveraging pressure is persistent enough after the credit crunch, it can explain the weak wage recovery in spite of already stronger aggregate demand.
Essays On Macroeconomics With Heterogeneous Agents
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Author : Min Fang (Economist)
language : en
Publisher:
Release Date : 2021
Essays On Macroeconomics With Heterogeneous Agents written by Min Fang (Economist) and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with Housing categories.
"This dissertation consists of essays addressing the macroeconomic outcomes of heterogeneous agent general equilibrium models with micro-level frictions. Each chapter employs both empirical and quantitative macroeconomic methods. The first chapter studies the impact of elevated volatility on the effectiveness of monetary policy on aggregate investment under firm-level capital adjustment costs. I argue that monetary policy is less effective at stimulating investment during periods of elevated volatility in firm-level TFP than during normal times. Empirically, I document that high volatility weakens investment responses to monetary stimulus. I then develop a heterogeneous firm New Keynesian model with lumpy investment to interpret these findings. In the model, non-convex capital adjustment costs create a sizable extensive margin of investment which is more sensitive to changes in both interest rate and volatility than the intensive margin. When volatility is high, firms tend to stay inactive at the extensive margin, so monetary stimulus motivates less investment at the extensive margin. I find that the quantitative implications of the model are primarily shaped by the specifications of the capital adjustment costs. Unlike much of the prior literature, I use the dynamic moments of investment to identify this key model element. Based on this parameterization, high volatility reduces the effectiveness of monetary stimulus for investment by 30%. This reduction is about half of what I find in the data. Therefore, the effect of monetary policy depends on both the lumpy nature of firm-level investment and fluctuations in volatility. The second chapter studies the role of migration and housing constraints in determining income inequality within and across Chinese cities. Combining microdata and a spatial equilibrium model, we quantify the impact of the massive spatial reallocation of workers and the rapid growth of housing costs on the national income distribution. We first show several stylized facts detailing the strong positive correlation between migration inflows, housing costs, and imputed income inequality among Chinese cities. We then build a spatial equilibrium model featuring workers with heterogeneous skills, housing constraints, and heterogeneous returns from housing ownership to explain these facts. Our quantitative results indicate that the reductions in migration costs and the disproportionate growth in productivity across cities and skills result in the observed massive migration flows. Combining with the tight land supply policy in big cities, the expansion of the housing demand causes the rapid growth of housing costs, and enlarges the inequality between local housing owners and migrants. The counterfactual analysis shows that if we redistribute land supply increment by migrant flow and increase land supply toward cities with more migrants, we could lower the within-city income inequality by 14% and the national income inequality by 18%. Meanwhile, we can simultaneously encourage more migration into higher productivity cities"--Pages vii-viii.
Essays On Agent Heterogeneity In Macroeconomics
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Author : Jose Luis Luna Alpizar
language : en
Publisher:
Release Date : 2016
Essays On Agent Heterogeneity In Macroeconomics written by Jose Luis Luna Alpizar and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
Heterogeneous agents models have become the norm in modern macroeconomics as the limitations of the representative-agent paradigm and the importance of studying household heterogeneity grow in recognition. Agent heterogeneity may not only be important to accurately capture the description of an aggregate equilibrium. Also, the representative agent assumption may hide many distributional effects and therefore could change the answer to many normative questions usually given by representative agent models.This dissertation contains three chapters exemplifying ways in which the consideration of heterogeneous agents in the modelling of macroeconomic phenomena has important repercussions for the predictions of the model and its normative implications. Chapters 1 and 2 show the importance of accounting for worker heterogeneity in the analysis of labor markets. Chapter 1 presents a search and matching model of unemployment with heterogeneous workers which's main features, are ex-ante worker heterogeneity and undirected search. These features enable the model to replicate the empirical correlations between labor market outcomes and proxy variables for worker productivity. The model displays job rationing, which makes it useful to understand the high levels of unemployment observed in deep recessions. It also constitutes a versatile tool for the analysis of several labor-market aspects in which worker heterogeneity could play an important role, such as the impact of employment policies that are believed to have asymmetric effects across the labor force.Chapter 2 provides an example of such applications by analyzing the effects of increments of a minimum wage. It explores theoretically and empirically the notion that minimum wages affect low-skill workers asymmetrically due to productivity differences. Using the model presented in chapter 1, with the incorporation of endogenous search intensity to account for the effects that minimum wages could have on worker participation, I show that a rising minimum wage lowers the employment and labor force participation of low-productivity workers by pricing them out of the market, while it increases the employment, participation, and wages of more productive workers that remain hirable. Chapter 2 also contains an empirical analysis that investigates and ultimately validates the model's predictions of changes in the minimum wage. Within the labor market for low-education (high school or lower) workers, increments in the minimum wage have diametrically opposed effects: they reduce the employment and labor force participation of teenagers with less than high school education, while increasing the employment and labor force participation of mature workers with high school educational attainment. A calibrated version of the model targeting the low-education labor market shows that, despite its opposite effects across the labor force, an increase in the minimum wage negatively impacts aggregate employment, labor force participation, and social welfare.Chapter 3 investigates the existence of complex dynamics in the behavior of exchange rates due heterogeneity in the expectations of their future value. A simple model of exchange rate dynamics featuring traders with heterogeneous expectations is introduced. The model is based on the asset pricing model in Brock and Hommes (1998) and features the BNN dynamic presented in Brown et al. (1950), a dynamic with desirable properties absent in other dynamics used in the literature. The chapter shows that even this simple model can easily generate complex and even chaotic dynamics in the exchange rate because of the interaction of traders with different beliefs. An important implication is that long-term exchange rate prediction is, in theory, difficult.
Essays In Heterogeneous Agent Monetary Economics
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Author : Christian D. Bustamante Amaya
language : en
Publisher:
Release Date : 2019
Essays In Heterogeneous Agent Monetary Economics written by Christian D. Bustamante Amaya and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with Macroeconomics categories.
In these essays, I study the interplay of monetary policy with agent heterogeneity in economies with frictional markets. While accounting for the heterogeneity observed at the micro level, I investigate the implications of having persistent differences in firms and households' balance sheets and their consequences for business cycle fluctuations in monetary economies during both normal times and in times of economic distress. In the first chapter, “Debt Overhang, Monetary Policy, and Economic Recoveries After Large Recessions”, I explore why conventional monetary policy was so ineffective in mitigating the severity of the 2007 U.S. recession and unsuccessful thereafter in stimulating aggregate demand. Linking firm-level data with predictions from a model, I show that accounting for individual firms’ debt structures is crucial in explaining why business investment fell so dramatically through the recession and remained low for several years, despite the Federal Reserve repeatedly cutting its target interest rate until conventional policy tools were exhausted. Using a sample of publicly traded firms, I establish that firms with greater long-term debt exposure experienced larger contractions and slower recoveries in their investment expenditure. Next, I show that debt overhang episodes were unusually prevalent over the years following the onset of the recession, and particularly so among firms relying more heavily on long-maturing debt. To understand these microeconomic observations and their implications for aggregates, I develop a New Keynesian model where heterogeneous firms finance investment using defaultable nominal long-term debt and where the central bank faces an explicit zero lower bound constraint. There, the greater a firm’s leverage, the higher its likelihood of experiencing a debt overhang episode following a large aggregate shock. Moreover, the severity of debt overhang problems, and their consequences for the distribution and level of aggregate investment, compounds with (1) an increased real value of debt, i.e., debt deflation, and (2) the monetary authority’s inability to restore inflation once nominal interest rates reach the zero lower bound. Together, firms’ long maturity debt positions and the binding zero lower bound are critical in transmitting the consequences of a deep recession into a remarkably anemic recovery in aggregate investment.
Essays In Macroeconomics
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Author : Anna Rogantini Picco
language : en
Publisher:
Release Date : 2020
Essays In Macroeconomics written by Anna Rogantini Picco and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020 with categories.
The three chapters of this thesis are inspired by some aspects of the complex world where we live in. The first chapter uncovers the role of firms' hiring decisions as a key source of state dependence in the fiscal spending multiplier. When the hiring rate is high, a larger share of workers has to be relocated from production to recruitment and training of the new hires. This diversion of resources lowers firms' productivity and reduces the effect of government spending stimulus on output. I establish this result using local projections and I illustrate this mechanism building a non-linear dynamic general equilibrium model. The second chapter, joint with Joonseok Oh, shows how uninsurable unemployment risk is crucial to qualitatively and quantitatively match macro responses to uncertainty shocks. Empirically, uncertainty shocks i) generate de ationary pressure; ii) have considerably negative consequences on economic activity; iii) produce a drop in aggregate consumption, which is mainly driven by the response of the households in the bottom 60% of the income distribution. Standard representative-agent New Keynesian models have diffculty to deliver these effects. A heterogeneous-agent framework with search and matching frictions and Calvo pricing allows us to jointly attain these results. Uncertainty shocks induce households' precautionary saving and firms' precautionary pricing behaviors, triggering a fall in aggregate demand and supply. These precautionary behaviors increase the unemployment risk of the imperfectly insured households, who strengthen precautionary saving. When the feedback loop between unemployment risk and precautionary saving is strong enough, a rise in uncertainty leads to i) a drop in in ation; ii) amplified negative responses of macro variables; iii) heterogeneous consumption responses of households, which are consistent with the empirical evidence. The third chapter, joint with Alessandro Ferrari, empirically evaluates whether adopting a common currency has changed the ability of euro area member states to share risk. We construct a counterfactual dataset of macroeconomic variables through the synthetic control method. We then use the output variance decomposition of Asdrubali, Sorensen and Yosha (1996) on both the actual and the synthetic data to study if there has been a change in risk sharing and through which channels. We find that the euro has reduced consumption smoothing. We further show that this reduction is mainly driven by the periphery countries of the euro area who have experienced a decrease in risk sharing through private credit.
Essays On Macroeconomics Of Monetary And Fiscal Policies
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Author : Yu She
language : en
Publisher:
Release Date : 2020
Essays On Macroeconomics Of Monetary And Fiscal Policies written by Yu She and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020 with categories.
My thesis contains three chapters which focus heavily on the macroeconomic policies. The first chapter focuses on the effectiveness of monetary policy on firms with different financial constraints. The second chapter addresses on how would the optimal tax policy change the evolution of inequality. The third chapter emphasizes on how to provide a proxy means testing from a welfare perspective to a transfer program. In the first chapter, I study the role of financial constraints in the effects of monetary policy on firm investments. I construct a quarterly textual measure of financial constraints from SEC filings using a deep learning model. It improves the prediction accuracy as compared to a Naive Bayes method by capturing the context information, such as grammatical structure and order of words. Firms classified as highly constrained are younger, smaller, have a higher liquidity ratio and higher leverage ratio. However, popular proxies of financial constraints often do not move monotonically with the level of financial constraints. Particularly for the liquidity ratio, it is high for both the least constrained firms, which have ample of cash, and the most constrained firms, which hoard cash due to precautionary saving motives and the high marginal cost of external capital. Using the constructed measure of financial constraints, the investments of financially constrained firms are persistently less responsive to monetary policy shocks due to high marginal cost of external funds. This implies that monetary policy might be less effective during crisis time due to a larger fraction of constrained firms. My results reconcile previous empirical findings and argue that the seemingly contrary conclusions are, to some extent, consistent with each other. In the second chapter, it intends to address on the question: how would the optimal taxes change the evolution of wealth inequality? This paper studies this question quantitatively under a standard incomplete market heterogeneous agent model. The benchmark model captures the wealth distribution and its evolution from 1967-2010. Optimal tax policy exercise considers an once-and-for-all tax reform at 1967 accounting for the time varying economic environment and transition dynamics. With a utilitarian social planner, the optimal linear comprehensive income tax leads to a higher level inequality in wealth where top 10\% and top 1\% gain at least 5\% more wealth shares at 2010 compared to benchmark. The optimal tax under a parameterized nonlinear tax function implies a highly progressive tax system which is also highly redistributive compared to the benchmark model. The wealth inequality in this case is increasing from 1960s to mid 1990s and then start to decline to its 1960s level or even lower. At 2010, top 10\% remains roughly their wealth holdings at their 1967 level while top 1\%, 0.1\% and 0.01\% wealth holding even decrease on average about 2\% compared to their low level at year 1967. In the last chapter, I propose a new proxy means testing method with minimizing welfare loss as the target instead of traditional targets such as minimizing consumption loss. In a simple economy with a utilitarian social planner, the welfare approach is equivalent to a weighted logistic regression with inverse consumption as weights. As a result, it focuses mainly on the exclusion error where poor are identified as non-poor and less weights on the inclusion error where non-poor are identified as poor. Using the socio-economic survey data in India in 2011, I compare the targeting performance of the welfare approach to other standard approaches in PMT. It shows that the welfare approach enjoys a lower exclusion error rate by sacrificing the inclusion error rate and does not out-perform the traditional method. It does, on the other hand, provide a welfare foundation for the poverty weighted least square method.
Essays In Quantitative Macroeconomics
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Author : Hanno Kase
language : en
Publisher:
Release Date : 2021
Essays In Quantitative Macroeconomics written by Hanno Kase and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with Consumer credit categories.
This thesis consists of three essays in quantitative macroeconomics. In Chapter 1, joint with Leonardo Melosi and Matthias Rottner, we leverage recent developments in machine learning to develop methods to solve and estimate large and complex nonlinear macroeconomic models, e.g. HANK models. Our method relies on neural networks because of their appealing feature that even models with hundreds of state variables can be solved. While likelihood estimation requires the repeated solving of the model, something that is infeasible for highly complex models, we overcome this problem by exploiting the scalability of neural networks. Including the parameters of the model as quasi state variables in the neural network, we solve this extended neural network and apply it directly in the estimation. To show the potential of our approach, we estimate a quantitative HANK model that features nonlinearities on an individual (borrowing limit) and aggregate level (zero lower bound) using simulated data. The model also shows that there is an important economic interaction between the impact of the zero lower bound and the degree of household heterogeneity. Chapter 2 studies the impact of macroprudential limits on mortgage lending in a heterogeneous agent life-cycle model with incomplete markets, long-term mortgage, and default. The model is calibrated to German economy using Household Finance and Consumption Survey data. I consider the effects of four policy instruments: loan-to-value limit, debt-toincome limit, payment-to-income limit, and maximum maturity. I find that their effect on homeownership rate is fairly modest. Only the loan-to-value limit significantly reduces the homeownership rate among young households. At the same time, it has the largest positive welfare effect. Chapter 3 explores applications of the backpropagation algorithm on heterogeneous agent models. In addition, I clarify the connection between deep learning and dynamic structural models by showing how a standard value function iteration algorithm can be viewed as a recurrent convolutional neural network. As a result, many advances in the field of machine learning can carry over to economics. This in turn makes the solution and estimation of more complex models feasible.