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When Does Household Heterogeneity Matter for Aggregate Fluctuations?

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  • Zheng Gong

Abstract

I establish the existence of a distributionally neutral benchmark for aggregate shock transmission in incomplete-market heterogeneous-agent (HA) economies, where all agents are equally exposed to the shock. In this benchmark, aggregates satisfy the equilibrium conditions of a fictitious representative-agent (RA) economy. Leveraging this result, I develop a tractable framework to identify and quantify redistribution mechanisms that drive the divergence between HA and RA outcomes. The framework (i) uncovers the mapping from deep structural parameters to redistribution and (quantitatively) to general-equilibrium dynamics; (ii) clarifies the roles of fiscal policy and investment; (iii) provides rescalable sufficient statistics portable across shock types; and (iv) identifies new redistribution channels in two-asset HANK and overlapping generation models.

Suggested Citation

  • Zheng Gong, 2025. "When Does Household Heterogeneity Matter for Aggregate Fluctuations?," CRC TR 224 Discussion Paper Series crctr224_2025_624v2, University of Bonn and University of Mannheim, Germany, revised Sep 2025.
    • Handle: RePEc:bon:boncrc:crctr224_2025_624v2
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp624
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    Keywords

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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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