Quantitative Macroeconomics with Heterogeneous Households
Posted: 4 Jun 2010
There are 3 versions of this paper
Quantitative Macroeconomics with Heterogeneous Households
Quantitative Macroeconomics with Heterogeneous Households
Quantitative Macroeconomics with Heterogeneous Households
Date Written: January 2009
Abstract
Macroeconomics is evolving from the study of aggregate dynamics to the study of the dynamics of the entire equilibrium distribution of allocations across individual economic actors. This article reviews the quantitative macroeconomic literature that focuses on household heterogeneity, with a special emphasis on the standard incomplete markets model. We organize the vast literature according to three themes that are central to understanding how inequality matters for macroeconomics. First, what are the most important sources of individual risk and cross-sectional heterogeneity? Second, what are individuals' key channels of insurance? Third, how does idiosyncratic risk interact with aggregate risk?
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