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Heterogeneous Households in a Sticky Price Model

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  • Jae Won Lee

    () (Rutgers University, Department of Economics)

Abstract

This paper introduces heterogeneous households into an otherwise standard sticky-price model with industry-specific labor markets. Households differ in labor incomes and asset markets are incomplete. I show that household heterogeneity affects equilibrium dynamics nontrivially by amplifying price stickiness endogenously through wealth effects on labor supply. To quantify the importance of household heterogeneity in amplifying stickiness, I estimate and compare representative and heterogeneous household models. The quantitative exercise shows the heterogenous household model performs better than its representative counterpart in accounting for aggregate and sectoral dynamics in the U.S., while being more consistent with empirical evidence on nominal rigidity at the aggregate and sectoral levels, thanks to the stickiness endoge

Suggested Citation

  • Jae Won Lee, 2010. "Heterogeneous Households in a Sticky Price Model," Departmental Working Papers 201001, Rutgers University, Department of Economics.
  • Handle: RePEc:rut:rutres:201001
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    Cited by:

    1. Sergey Ivashchenko, 2015. "A 5-sector DSGE Model of Russia," EUSP Department of Economics Working Paper Series Ec-01/15, European University at St. Petersburg, Department of Economics.

    More about this item

    Keywords

    DSGE model; heterogeneity; multiple sectors; real rigidities; price stickiness;

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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