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The Representative Consumer in the Neoclassical Growth Model with Idiosyncratic Shocks

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  • Lilia Maliar

    (University of Alicante)

  • Serguei Maliar

    (University of Alicante)

Abstract

This paper studies a complete-market version of the neoclassical growth model, where agents face idiosyncratic shocks to eearnings. We show that if agents possess identical preferences of either the CRRA or the addilog type, then the heterogeneous-agent economy behaves as if there was a representative consumer who faces three kinds of shocks: to preferences, to technology and to labor. We calibrate and simulate the constructed representative-consumer models. We find that idiosyncratic uncertainty can have a non-negligible effect on aggregate labor-market fluctuations. (Copyright: Elsevier)

Suggested Citation

  • Lilia Maliar & Serguei Maliar, 2003. "The Representative Consumer in the Neoclassical Growth Model with Idiosyncratic Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 368-380, April.
    • Handle: RePEc:red:issued:v:6:y:2003:i:2:p:368-380
    DOI: 10.1016/S1094-2025(03)00003-6
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    More about this item

    Keywords

    neoclassical growth model; heterogeneous agents; aggregation; business cycles; idiosyncratic shocks;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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