Quantitative Macroeconomics with Heterogeneous Households

Heathcote, Jonathan; Storesletten, Kjetil; Violante, Giovanni L.

doi:10.1146/annurev.economics.050708.142922

Cited by 198 publications

(30 citation statements)

References 161 publications

(47 reference statements)

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“…Significant research efforts surveyed by Heathcote, Storesletten, and Violante (2009) have forcefully made the case for the quantitative relevance of heterogeneous behaviour in terms of both social welfare and macroeconomic outcomes. Storesletten, Telmer, and Yaron (2001), for instance, find that if some households are liquidity constrained the cross-sectional welfare costs of aggregate fluctuations can be substantially larger than the calculations á la Lucas (1987), which are based on complete markets and the representative agent paradigm.…”

mentioning

confidence: 99%

Consumption, Income Changes, and Heterogeneity: Evidence from Two Fiscal Stimulus Programs

Misra

Surico

2014

American Economic Journal: Macroeconomics

141

122

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Almost half of American families did not adjust their consumption following receipt of the 2001 or 2008 tax rebates. Another 20 percent, with low income and more likely to rent, spent a small but significant amount. Households with large spending propensity held high levels of mortgage debt. The heterogeneity is concentrated in a few nondurable categories and a handful of "new vehicle" purchases. The cumulated predictions of the heterogeneous response model tend to be smaller and more accurate than their homogeneous response model counterparts, offering new insights on the evaluation of the two fiscal stimulus programs. (JEL D12, D91, E21, E32, E62) "When a full analysis of heterogeneity in responses was made [in microeconometric investigations], a variety of candidate averages emerged to describe the 'average' person, and the long-standing edifice of the representative consumer was shown to lack empirical support." -James J. Heckman (2001, p. 674) "We may expect to see that integrating individual coefficients [from models of heterogeneous responses] yields roughly mean effect as estimated by the associated least-squares coefficient. One should be cautious, however, about this interpretation in very heterogeneous situations." -Roger Koenker (2005, p. 302) In the aftermath of the recent financial crisis, governments around the world have sought to support the economy through unprecedented fiscal interventions. Considerable uncertainty (and disagreement among economists) exists, however, around the impact of these policies. At the heart of this uncertainty lays the recognition that the effects of fiscal policies on the aggregate economy cannot be fully understood without explicit consideration of distributional dynamics. This important insight feeds into a growing macroeconomic literature which explicitly recognizes that consumers and entrepreneurs are inherently different in their access to

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confidence: 99%

Consumption, Income Changes, and Heterogeneity: Evidence from Two Fiscal Stimulus Programs

Misra

Surico

2014

American Economic Journal: Macroeconomics

141

122

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“…1 It is also known as the Bewley-Huggett-Aiyagari model. For surveys of the literature, see Heathcote, Storesletten, and Violante (2009); Guvenen (2011); Ljungqvist and Sargent (2012); Quadrini and Ríos-Rull (2015); and Krueger, Mitman, and Perri (2016).…”

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confidence: 99%

Optimal Capital Taxation and Precautionary Savings

Chen¹,

Chien²,

Yang³

2021

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“…18 We set the time discount factor β = 0.95. To facilitate calibration, we assume that the idiosyncratic shock θ follows the Pareto distribution,…”

Section: Calibrations and Predictionsmentioning

confidence: 99%

Money, liquidity and welfare

Wen¹

2015

European Economic Review

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This paper develops an analytically tractable Bewley model of money demand to shed light on some important questions in monetary theory, such as the welfare cost of inflation. It is shown that when money is a vital form of liquidity to meet uncertain consumption needs, the welfare costs of inflation can be extremely large. With log utility and parameter values that best match both the aggregate money demand curve suggested by Lucas (2000) and the variance of household consumption, agents in our model are willing to reduce consumption by 3% ∼ 4% to avoid 10% annual inflation. The astonishingly large welfare costs of inflation arise because inflation increases consumption risk by eroding the buffer-stock-insurance value of money, thus hindering consumption smoothing at the household level. Such an inflation-induced increase in consumption risk at the micro level cannot be captured by representative-agent models or the Bailey triangle. Although the development of financial intermediation can mitigate the problem, with realistic credit limits the welfare loss of moderate inflation still remains several times larger than estimations based on the Bailey triangle. Our findings provide a strong justification for adopting a low inflation target by central banks, especially in developing countries where money is the major form of household financial wealth.

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Quantitative Macroeconomics with Heterogeneous Households

Cited by 198 publications

References 161 publications

Consumption, Income Changes, and Heterogeneity: Evidence from Two Fiscal Stimulus Programs

Consumption, Income Changes, and Heterogeneity: Evidence from Two Fiscal Stimulus Programs

Optimal Capital Taxation and Precautionary Savings

Money, liquidity and welfare

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