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A note on sunspots with heterogeneous agents

Listed author(s):
  • Daniel R. Carroll
  • Eric R. Young

This paper studies sunspot fluctuations in a model with heterogeneous households. We find that wealth inequality reduces the degree of increasing returns needed to produce indeterminacy, while wage inequality increases it. When the model is calibrated to match the joint distribution of hours, income, and wealth, the required degree of increasing returns to scale is still much too high to be supported empirically (although smaller than similar homogeneous agent economies). We also find that the model robustly predicts only one sunspot, despite having 1,262 predetermined state variables.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0906.

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Date of creation: 2009
Handle: RePEc:fip:fedcwp:0906
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