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Preference shocks from aggregation: time series data evidence

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  • Lilia Maliar
  • Serguei Maliar

Abstract

We investigate the impact of preference shocks on the aggregate dynamics of the U.S. economy in the context of a neoclassical growth model derived from aggregation. The aggregation result we use is as follows: if markets are complete and if agents have identical preferences of the addilog type, then the heterogeneous-agent economy where agents are subject to idiosyncratic productivity shocks behaves as if there was a representative consumer who faces shocks to preferences and technology. We estimate the parameters in the aggregation-based model from the aggregate time-series data and compute the numerical solution. We find that the preference shocks play an important role in the aggregate labour-market fluctuations.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 37 (2004)
Issue (Month): 3 (August)
Pages: 768-781

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Handle: RePEc:cje:issued:v:37:y:2004:i:3:p:768-781

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References

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  1. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Working Paper Series, Macroeconomic Issues 90, Federal Reserve Bank of Chicago.
  2. Atkeson, Andrew & Ogaki, Masao, 1996. "Wealth-varying intertemporal elasticities of substitution: Evidence from panel and aggregate data," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 507-534, December.
  3. Jaume Ventura & Francesco Caselli, 2000. "A Representative Consumer Theory of Distribution," American Economic Review, American Economic Association, vol. 90(4), pages 909-926, September.
  4. Maliar, Lilia & Maliar, Serguei, 2001. "Heterogeneity in capital and skills in a neoclassical stochastic growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 25(9), pages 1367-1397, September.
  5. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  6. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  7. Marianne Baxter & Robert G. King, 1995. "Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series," NBER Working Papers 5022, National Bureau of Economic Research, Inc.
  8. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  9. Chatterjee, Satyajit, 1994. "Transitional dynamics and the distribution of wealth in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 54(1), pages 97-119, May.
  10. Lilia Maliar & Serguei Maliar, 2002. "The Representative Consumer In The Neoclassical Growth Model With Idiosyncratic Shocks," Working Papers. Serie AD 2002-20, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  11. Gomme, P. & Greenwood, J., 1993. "On the Cyclical Allocation of Risk," RCER Working Papers 355, University of Rochester - Center for Economic Research (RCER).
  12. Lilia Maliar & Serguei Maliar, 2001. "Parametrized Expectations Algorithm And The Moving Bounds," Working Papers. Serie AD 2001-23, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  13. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  14. den Haan, Wouter J & Marcet, Albert, 1990. "Solving the Stochastic Growth Model by Parameterizing Expectations," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 31-34, January.
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Cited by:
  1. Clarke, Andrew J. & Johri, Alok, 2009. "Procyclical Solow Residuals Without Technology Shocks," Macroeconomic Dynamics, Cambridge University Press, vol. 13(03), pages 366-389, June.
  2. Lilia Maliar & Serguei Maliar, 2005. "An Analytical Construction Of Constantinides¿ Social Utility Function," Working Papers. Serie AD 2005-25, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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