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The Private Memory of Aggregate Uncertainty

Author

Listed:
  • Carlos da Costa

    (Fundacao Getulio Vargas)

  • Vitor Farinha Luz

    (University of British Columbia)

Abstract

We investigate social insurance in a dynamic Mirrlees' (1971) economy for which each agent's labor market productivity is the product of her stochastic and privately observed ability and an aggregate, publicly observed, stochastic component. The interaction between aggregate and idiosyncratic shocks optimally induces memory of aggregate uncertainty. We show that the optimal allocation depends on previous aggregate shocks when: i preferences are not logarithmic; ii) capital accumulation is possible, or; iii) private type distributions depend on the aggregate state. (Copyright: Elsevier)

Suggested Citation

  • Carlos da Costa & Vitor Farinha Luz, 2018. "The Private Memory of Aggregate Uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 169-183, January.
    • Handle: RePEc:red:issued:13-192
    DOI: 10.1016/j.red.2017.07.001
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    References listed on IDEAS

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    Cited by:

    1. Ilze Kalnina & Natalia Sizova, 2015. "Estimation of volatility measures using high frequency data (in Russian)," Quantile, Quantile, issue 13, pages 3-14, May.
    2. Marcelo Veracierto, 2020. "Business Cycle Fluctuations in Mirrlees Economies: The case of i.i.d. shocks​," Working Paper Series WP-2020-04, Federal Reserve Bank of Chicago.
    3. Veracierto, Marcelo, 2021. "Business cycle fluctuations in Mirrlees economies: The case of i.i.d. shocks," Journal of Economic Theory, Elsevier, vol. 196(C).

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    More about this item

    Keywords

    Optimal taxation; Aggregate risk; Dynamics; Asymmetric information;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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