Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
We present a truncation theory of idiosyncratic histories for heterogeneous‐agent models. This method allows us to solve for optimal Ramsey policies in such models with aggregate shocks. The method can be applied to a large variety of settings, with occasionally binding credit constraints. We use this theory to characterize the optimal level of unemployment insurance over the business cycle in a production economy. We find that the optimal policy is countercyclical.