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When inequality matters for macro and macro matters for inequality

Ahn, Se Hyoun, Kaplan, Greg, Moll, Benjamin, Winberry, Thomas and Wolf, Christian (2017) When inequality matters for macro and macro matters for inequality. NBER Macroeconomics Annual, 32 (1). 1 - 75. ISSN 0889-3365

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Identification Number: 10.1086/696046


We develop an efficient and easy to use computational method for solving a wide class of general equilibrium heterogeneous agent models with aggregate shocks together with an open source suite of codes that implement our algorithms in an easy to use toolbox. Our method extends standard linearization techniques and is designed to work in cases when inequality matters for the dynamics of macroeconomic aggregates. We present two applications that analyze a two asset incomplete markets model parameterized to match the distribution of income, wealth, and marginal propensities to consume. First, we show that our model is consistent with two key features of aggregate consumption dynamics that are difficult to match with representative agent models: (1) the sensitivity of aggregate consumption to predictable changes in aggregate income, and (2) the relative smoothness of aggregate consumption. Second, we extend the model to feature capital-skill complementarity and show how factor-specific productivity shocks shape dynamics of income and consumption inequality.

Item Type: Article
Official URL:
Additional Information: © 2018 National Bureau of Economic Research
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
Date Deposited: 06 Nov 2019 15:57
Last Modified: 04 Jul 2024 20:24

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