Intergenerational Redistribution in the Great Recession
AbstractWe construct stochastic overlapping-generations general equilibrium models in which households are subject to aggregate shocks that affect both wages and asset prices. We use a calibrated version of the model to quantify how the welfare costs of severe recessions are distributed across different age groups. The model predicts that younger cohorts fare better than older cohorts when the equilibrium decline in asset prices is large relative to the decline in wages. Asset price declines hurt the old, who rely on asset sales to finance consumption, but benefit the young, who purchase assets at depressed prices. In our preferred calibration, asset prices decline more than twice as much as wages, consistently with the experience of the US economy in the Great Recession. A model recession is approximately welfare-neutral for households in the 20-29 age group, but translates into a large welfare loss of around 10 percent of lifetime consumption for households aged 70 and over.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 141.
Date of creation: 2011
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Other versions of this item:
- Glover, Andrew & Heathcote, Jonathan & Krueger, Dirk & Ríos-Rull, José-Víctor, 2011. "Intergenerational Redistribution in the Great Recession," CEPR Discussion Papers 8329, C.E.P.R. Discussion Papers.
- Andrew Glover & Jonathan Heathcote & Dirk Krueger & José-Víctor Ríos-Rull, 2011. "Intergenerational Redistribution in the Great Recession," NBER Working Papers 16924, National Bureau of Economic Research, Inc.
- Andrew Glover & Jonathan Heathcote & Dirk Krueger & José-Víctor Ríos-Rull, 2011. "Intergenerational redistribution in the Great Recession," Working Papers 684, Federal Reserve Bank of Minneapolis.
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
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by Christian Zimmermann in NEP-DGE blog on 2011-04-17 21:10:59
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