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Managing Inequality over Business Cycles: Optimal Policies with Heterogeneous Agents and Aggregate Shocks

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  • François Le Grand

    (EMLYON Business School)

  • Xavier Ragot

    (Observatoire français des conjonctures économiques)

Abstract

We present a truncation theory of idiosyncratic histories for heterogeneous agent models. This method allows us to derive optimal Ramsey policies in heterogeneous agent models with aggregate shocks, in general frameworks. We use this method to characterize the optimal level of unemployment insurance over the business cycle in a production economy, with occasionally binding credit constraints.

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  • François Le Grand & Xavier Ragot, 2020. "Managing Inequality over Business Cycles: Optimal Policies with Heterogeneous Agents and Aggregate Shocks," Sciences Po Economics Discussion Papers 2020-10, Sciences Po Departement of Economics.
  • Handle: RePEc:spo:wpecon:info:hdl:2441/4lhe3u3c38ojohjlcbfaupcjr
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    5. Mark Aguiar & Manuel Amador & Cristina Arellano, 2021. "Micro Risks and Pareto Improving Policies with Low Interest Rates," Staff Report 625, Federal Reserve Bank of Minneapolis.
    6. François Le Grand & Xavier Ragot, 2023. "Should we increase or decrease public debt? Optimal fiscal policy with heterogeneous agents," Working Papers halshs-03922359, HAL.
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    8. François Le Grand & Xavier Ragot, 2022. "Refining the truncation method to solve heterogeneous-agent models," Post-Print hal-04384033, HAL.
    9. Grimaud, Alex, 2021. "Precautionary saving and un-anchored expectations," MPRA Paper 110651, University Library of Munich, Germany.
    10. Grimaud, Alex, 2021. "Precautionary saving and un-anchored expectations," MPRA Paper 108931, University Library of Munich, Germany.
    11. Beatriz González & Galo Nuño & Dominik Thaler & Silvia Albrizio, 2021. "Firm heterogeneity, capital misallocation and optimal monetary policy," Working Papers 2145, Banco de España.
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    More about this item

    Keywords

    Incomplete markets; Optimal policies; Heterogeneous agent models;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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