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Idiosyncratic Shocks, Aggregate Fluctuations And The Representative Consumer

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Author Info

  • Serguei Maliar

    (Universidad de Alicante)

Abstract

This paper analyzes a complete market neoclassical economy with heterogeneous agents. Agents have addilog preferences and receive idiosyncratic labor productivity shocks. We show that at the aggregate level, such an economy behaves as if there was the representative consumer who faces shocks to preferences and technology. This fact enables us to infer time-series properties of the model without specifying a process for idiosyncratic shocks. Instead, we calibrate the process for shocks to preferences and technology in the model derived from aggregation. In contrast to the standard one-shock setup, the model with two types of shocks can generate the appropriate predictions with respect to labor markets.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2001-07.pdf
File Function: Fisrt version / Primera version, 2001
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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2001-07.

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Length: 21 pages
Date of creation: Mar 2001
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2001-07

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Related research

Keywords: Heterogeneous Agents; Idiosyncratic and Preference Shocks; Aggregation.;

References

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  1. Teresa Garcia-Milà & Albert Marcet & Eva Ventura, 1995. "Supply side interventions and redistribution," Economics Working Papers 115, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Kydland, Finn E., 1984. "Labor-force heterogeneity and the business cycle," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 21(1), pages 173-208, January.
  3. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(5), pages 867-896, October.
  4. Gomme, P. & Greenwood, J., 1992. "On the Cyclical Allocation of Risk," UWO Department of Economics Working Papers, University of Western Ontario, Department of Economics 9205, University of Western Ontario, Department of Economics.
  5. Albert Marcet & Guido Lorenzoni, 1998. "The Parameterized Expectations Approach: Some Practical Issues," QM&RBC Codes, Quantitative Macroeconomics & Real Business Cycles 128, Quantitative Macroeconomics & Real Business Cycles.
  6. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  7. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
  8. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Discussion Paper / Institute for Empirical Macroeconomics 24, Federal Reserve Bank of Minneapolis.
  9. 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.
  10. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
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