Preference Shocks From Aggregation: Time Series Data Evidence
We investigate the impact of preference shocks on the aggregate dynamics of the U.S. economy in the context of a neoclassical growth model derived from aggregation. The aggregation result we use is as follows: if markets are complete and if agents have identical preferences of the addilog type, then the heterogeneous-agent economy where agents are subject to idiosyncratic productivity shocks behaves as if there was a representative consumer who faces shocks to preferences and technology. We estimate the parameters in the aggregation-based model from the aggregate time-series data and compute the numerical solution. We find that the preference shocks play an important role in the aggregate labor-market fluctuations.
|Date of creation:||Nov 2003|
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