Qualitative Surveys And Margins Of Adjustment In Heterogeneous Agent Economies

Frictions at the microeconomic level generate distortions to macroeconomic aggregates along the extensive and the intensive margin. How can we measure these margins and identify their interaction with aggregate fluctuations? This paper advocates the use of qualitative survey data. Credible measurement of distortions necessitates the use of restrictions that are consistent with a variety of mechanisms and naturally leads to loss of point identification. Survey data can be used to tighten the identified set and separately identify the two margins. The paper provides a formal treatment both at the partial and general equilibrium level. Using the Business and Consumer Survey collected by the European Commission, I identify distortions due to consumer and firm financial frictions in the Spanish economy and provide decompositions of the margins of adjustment. Preliminary results suggest that most of the adjustment during the financial crisis happened through the intensive margin while aggregate consumption and investment distortions operated through production e.g. through endogenous total factor productivity losses.