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Can a Representative-Agent Model Represent a Heterogeneous-Agent Economy?

Author

Listed:
  • Sungbae An

    (SMU)

  • Yongsung Chang
  • Sun-Bin Kim

Abstract

Accounting for observed fluctuations in aggregate employment, consumption, and real wage using the optimality conditions of a representative household requires preferences that are incompatible with economic priors. In order to reconcile theory with data, we construct a model with heterogeneous agents whose decisions are difficult to aggregate because of incomplete capital markets and the indivisible nature of labor supply. If we were to explain the model-generated aggregate time series using decisions of a stand-in household, such a household must have a non-concave or unstable utility as is often found with the aggregate U.S. data.

Suggested Citation

  • Sungbae An & Yongsung Chang & Sun-Bin Kim, 2008. "Can a Representative-Agent Model Represent a Heterogeneous-Agent Economy?," Microeconomics Working Papers 22056, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:microe:22056
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    References listed on IDEAS

    as
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    Cited by:

    1. Janicki, Hubert P., 2014. "The role of asset testing in public health insurance reform," Journal of Economic Dynamics and Control, Elsevier, vol. 44(C), pages 169-195.
    2. Yongsung Chang & Sun-Bin Kim & Frank Schorfheide, 2010. "Labor-Market Heterogeneity, Aggregation, and the Lucas Critique," RCER Working Papers 556, University of Rochester - Center for Economic Research (RCER).
    3. Alonso-Ortiz, Jorge & Rogerson, Richard, 2010. "Taxes, transfers and employment in an incomplete markets model," Journal of Monetary Economics, Elsevier, pages 949-958.
    4. Alonso-Ortiz, Jorge & Rogerson, Richard, 2010. "Taxes, transfers and employment in an incomplete markets model," Journal of Monetary Economics, Elsevier, pages 949-958.
    5. Michael Keane & Richard Rogerson, 2015. "Reconciling Micro and Macro Labor Supply Elasticities: A Structural Perspective," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 89-117, August.
    6. Richard Rogerson, 2011. "Individual and Aggregate Labor Supply with Coordinated Working Times," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 7-37, August.

    More about this item

    Keywords

    Representative-Agent Model; Heterogeneous Agent; Macroeconomics;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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