Banco de España Alcalá 48, 28014 Madrid Spain
Institutional Affiliation: Banco de España
Information about this author at RePEc
NBER Working Papers and Publications
|September 2019||Financial Frictions and the Wealth Distribution|
with Jesús Fernández-Villaverde, Galo Nuño: w26302
This paper investigates how, in a heterogeneous agents model with financial frictions, idiosyncratic individual shocks interact with exogenous aggregate shocks to generate time-varying levels of leverage and endogenous aggregate risk. To do so, we show how such a model can be efficiently computed, despite its substantial nonlinearities, using tools from machine learning. We also illustrate how the model can be structurally estimated with a likelihood function, using tools from inference with diffusions. We document, first, the strong nonlinearities created by financial frictions. Second, we report the existence of multiple stochastic steady states with properties that differ from the deterministic steady state along important dimensions. Third, we illustrate how the generalized impulse re...