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A note on sunspots with heterogeneous agents

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  • Daniel R. Carroll
  • Eric R. Young

Abstract

This paper studies sunspot fluctuations in a model with heterogeneous households. We find that wealth inequality reduces the degree of increasing returns needed to produce indeterminacy, while wage inequality increases it. When the model is calibrated to match the joint distribution of hours, income, and wealth, the required degree of increasing returns to scale is still much too high to be supported empirically (although smaller than similar homogeneous agent economies). We also find that the model robustly predicts only one sunspot, despite having 1,262 predetermined state variables.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0906.

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Date of creation: 2009
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Handle: RePEc:fip:fedcwp:0906

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Keywords: Wealth ; Wages;

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References

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  9. Flodén, Martin & Linde, Jesper, 1998. "Idiosyncratic Risk in the U.S. and Sweden: Is there a Role for Government Insurance?," Seminar Papers 654, Stockholm University, Institute for International Economic Studies.
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  12. Lilia Maliar & Serguei Maliar, 2003. "Indivisible Labor, Lotteries And Idiosyncratic Productivity Shocks," Working Papers. Serie AD 2003-38, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  13. Benhabib, Jess & Nishimura, Kazuo, 1998. "Indeterminacy and Sunspots with Constant Returns," Journal of Economic Theory, Elsevier, vol. 81(1), pages 58-96, July.
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  15. Nicolas Dromel & Patrick-Antoine Pintus, 2006. "Are Progressive Fiscal Rules Stabilizing?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00410452, HAL.
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  27. repec:hal:wpaper:halshs-00410452 is not listed on IDEAS
  28. Nir Jaimovich, 2005. "Income Effects and Indeterminacy in a Calibrated One-Sector Growth Model," Discussion Papers 07-012, Stanford Institute for Economic Policy Research, revised Mar 2007.
  29. Tarek Coury & Yi Wen, 2007. "Global indeterminacy in locally determinate RBC models," Working Papers 2007-029, Federal Reserve Bank of St. Louis.
  30. Daniel R. Carroll, 2013. "The demand for income tax progressivity in the growth model," Working Paper 1106, Federal Reserve Bank of Cleveland.
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