Heterogeneity in Macroeconomic models: a Review of Theory and Computation

This paper reviews the literature examining the consequences of heterogeneity in macroeconomic modeling, especially within the context of monetary and fiscal policy transmission. This review reveals that heterogeneity can significantly alter the transmission mechanisms of monetary policy in macroeconomic models and suggests possible advantages from collaboration between fiscal and monetary policies. The paper also provides a critical evaluation of various analytical and numerical methods to solve macroeconomic models with heterogeneity, underscoring the need for a careful methodological choice based on specific circumstances.
Keywords: Literature review, Heterogeneity, Monetary Policy, Fiscal Policy, Macroeconomic Modeling, HANK model.
JEL Codes: E32, E52, E62, D31, C61.