The representative consumer in the neoclassical growth model with idiosyncratic shocks (original) (raw)

2003): “The Representative Consumer in the Neoclassical Growth Model with Idiosyncratic Shocks,” Review of Economic Dynamics

2015

This paper studies a complete-market version of the neoclassical growth model, where agents face idiosyncratic shocks to earnings. We show that if agents possess identical preferences of either the CRRA or the addilog type, then the heterogeneous-agent economy behaves as if there was a representative consumer who faces three kinds of shocks, to preferences, to technology and to labor. We calibrate and simulate the constructed representative-consumer models. We find that idiosyncratic uncertainty can have a non-negligible effect on aggregate labor-market fluctuations.

Consumption externalities: a representative consumer model when agents are heterogeneous

Economic Theory, 2007

We examine a growth model with consumption externalities where agents differ in their initial capital endowment and their reference group. We show under which conditions the aggregate equilibrium with heterogeneous agents replicates that obtained with a representative consumer, despite the fact that different individuals have different consumption levels. Next we consider the implications of the presence of consumption externalities for the long-run distributions of income and wealth. We find that, in a growing economy, "keeping up with the Joneses" results in less inequality than would prevail in an economy with no consumption externalities.

From Individual to Aggregate Labor Supply: A Quantitative Analysis Based on a Heterogeneous Agent Macroeconomy*

International Economic Review, 2006

At the aggregate level, the labor-supply elasticity depends on the reservationwage distribution. We present a model economy where workforce heterogeneity stems from idiosyncratic productivity shocks. The model economy exhibits the cross-sectional earnings and wealth distributions that are comparable to those in the micro data. We find that the aggregate labor-supply elasticity of such an economy is around 1, greater than a typical micro estimate. * Manuscript . 2 Browning et al. (1999) raise warning flags about the current use of micro evidence in calibrating macro models.

The Neoclassical Growth Model with Heterogeneous Quasi-Geometric Consumers

Journal of Money, Credit, and Banking, 2006

This paper studies how the assumption of quasi-geometric (quasihyperbolic) discounting affects the individual consumption-savings behavior in the context of the standard one-sector neoclassical growth model with heterogeneous agents. The agents are subject to idiosyncratic shocks and face borrowing constraints. We confine attention to an interior Markov recursive equilibrium. The consequence of quasi-geometric discounting is that the effective discount factor of an agent is not a constant, but an endogenous variable which depends on the agent's current state. We show, both analytically and by simulation, that this feature of the model can significantly affect its distributional implications.

Quasi-linear preferences in the macroeconomy: Indeterminacy, heterogeneity and the representative consumer

Spanish Economic Review, 2003

We use aggregation theory to investigate the link between one-consumer and multi-consumer economies under a quasi-linear class of preferences. Our study is carried out in the context of the neoclassical growth model. The quasilinear preferences considered are additive in consumption and leisure and linear in leisure. We first show that in a homogeneous agents economy, the individual hours worked are not uniquely determined. We then demonstrate that the indeterminacy can be resolved by introducing heterogeneity. For example, idiosyncratic shocks to productivities or imperfect substitutability of labor restore the uniqueness of equilibrium. As a special case, our analysis includes the indivisible labor model by .

The neoclassical growth model with heterogenous quasi-geometric consumers

2003

This paper studies how the assumption of quasi-geometric (quasihyperbolic) discounting affects the individual consumption-savings behavior in the context of the standard one-sector neoclassical growth model with heterogeneous agents. The agents are subject to idiosyncratic shocks and face borrowing constraints. We confine attention to an interior Markov recursive equilibrium. The consequence of quasi-geometric discounting is that the effective discount factor of an agent is not a constant, but an endogenous variable which depends on the agent's current state. We show, both analytically and by simulation, that this feature of the model can significantly affect its distributional implications.

Distributional dynamics in a neoclassical growth model: The role of elastic labor supply

Journal of Economic Dynamics and Control, 2008

We examine the evolution of the distributions of wealth and income in a Ramsey model in which agents differ in their initial capital endowment and where the labor supply is endogenous. The assumption that the utility function is homogeneous implies that the macroeconomic equilibrium is independent of the distribution of wealth and allows us to characterize fully income and wealth dynamics. We find that although the dynamics of the distribution of wealth are similar under fixed and flexible labor, those of the income distribution are not. In response to a structural change, income inequality may move in opposite ways depending on whether or not the labor supply is fixed.