A small question on model setting

General DSGE Modeling
1

Dear Professor Pfeifer,

I read that the household sector is always differentiated into savers and borrowers in many papers using DSGE model, in which the savers only deposit money while the borrowers only lend money. However, many households in reality generally deposit money as well as lend money at the same time.

How to understand this kind of model setting? Is this a trick of building the DSGE model?

Thank you for your time on this.

2

A model is always a simplification. You have to ask yourself whether having some checking account deposits while being heavily indebted is relevant to the question at hand. For most models, looking at the net asset position instead of the gross one is sufficient. And in that case, there are the two types you describe.