Computational Economics
00 / Prerequisite

The model behind the computation

Start with demand, competition and entry. The course then connects these choices to an economy, its estimated parameters and its implementation.

The economic model used in this course is based on De Loecker, Eeckhout and Mongey (2026), Quantifying Market Power and Business Dynamism in the Macroeconomy.

These are my independent teaching notes. They rebuild the model in Python and estimate it on the paper’s data. The course uses its own parameter values, so its results can differ from the paper’s. The notes do not represent the views of the paper’s authors. All errors are my own.

Start with the components
One economy, connected choices

What must fit together?

A firm’s decision changes the environment for other firms.

01DemandWhere does spending go? 02CostsHow much labor produces a unit? 03ConductWho chooses quantities or prices? 04EntryWho wants to operate? 05EquilibriumDo choices clear the whole economy?
AB08 · Demand & competition

Shares into
markups.

Nested demand connects a firm’s market share to its pricing power.

Berry92 · Entry & incentives

Who gets
to operate?

Check the firms inside the market and those waiting outside.

Then return to the course

From components to computation.

01 · Moment MatchingChoose a statistic.How do parameters move a moment?02 · One EconomyConnect the blocks.Shares, labor and operating firms must agree.03 · EstimationCompare with data.Repeat the economy at candidate parameters.04 · Parallel Computing and AccelerationMake it faster.Vectorize, run workers in parallel and batch work on a GPU.05 · Untargeted MomentTest the fit.Does the model explain a moment it was not fitted to?
Sources and attribution

References

The economic model and methods draw on the sources below. Chapter citations link to these entries; the prerequisite guides also link to supporting lectures.

  1. Main economic modelDe Loecker, Jan, Jan Eeckhout, and Simon Mongey. 2026. Quantifying Market Power and Business Dynamism in the Macroeconomy. Federal Reserve Bank of Minneapolis, Staff Report 688, September. Paper and version details ↗
  2. Atkeson, Andrew, and Ariel Burstein. 2008. “Pricing-to-Market, Trade Costs, and International Relative Prices.” American Economic Review 98 (5): 1998–2031.
  3. Berry, Steven T. 1992. “Estimation of a Model of Entry in the Airline Industry.” Econometrica 60 (4): 889–917.
  4. Hansen, Lars Peter. 1982. “Large Sample Properties of Generalized Method of Moments Estimators.” Econometrica 50 (4): 1029–1054.
  5. McFadden, Daniel. 1989. “A Method of Simulated Moments for Estimation of Discrete Response Models Without Numerical Integration.” Econometrica 57 (5): 995–1026.
  6. Sobol’, I. M. 1967. “On the Distribution of Points in a Cube and the Approximate Evaluation of Integrals.” USSR Computational Mathematics and Mathematical Physics 7 (4): 86–112.
  7. Further reading on Sobol sequencesJoe, Stephen, and Frances Y. Kuo. 2008. “Constructing Sobol Sequences with Better Two-Dimensional Projections.” SIAM Journal on Scientific Computing 30 (5): 2635–2654.

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