Can a Representative-Agent Model Represent a Heterogeneous-Agent Economy
- (pp. 29-54)
Abstract
Accounting for observed fluctuations in aggregate employment, consumption, and real wage using the optimality conditions of a representative household requires preferences that are incompatible with economic priors. In order to reconcile theory with data, we construct a model with heterogeneous agents whose decisions are difficult to aggregate because of incomplete capital markets and the indivisible nature of labor supply. If we were to explain the model-generated aggregate time series using decisions of a stand-in household, such a household must have a nonconcave or unstable utility as is often found with the aggregate US data. (JEL E13, E24)Citation
An, Sungbae, Yongsung Chang, and Sun-Bin Kim. 2009. "Can a Representative-Agent Model Represent a Heterogeneous-Agent Economy." American Economic Journal: Macroeconomics, 1 (2): 29-54. DOI: 10.1257/mac.1.2.29Additional Materials
JEL Classification
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
- E13 General Aggregative Models: Neoclassical
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