Publication Type

Journal Article

Publication Date

11-2008

Abstract

Accounting for observed fluctuations in aggregate employment, consumption, and real wage using the optimality conditions of a representative household requires preferences that are incompatible with economic priors. In order to reconcile theory with data, we construct a model with heterogeneous agents whose decisions are difficult to aggregate because of incomplete capital markets and the indivisible nature of labor supply. If we were to explain the model-generated aggregate time series using decisions of a stand-in household, such a household must have a nonconcave or unstable utility as is often found with the aggregate US data.

Discipline

Macroeconomics

Research Areas

Econometrics

Publication

American Economic Journal: Macroeconomics

Volume

1

Issue

2

First Page

29

Last Page

54

ISSN

1945-7707

Identifier

10.1257/mac.1.2.29

Publisher

American Economic Association

Additional URL

http://dx.doi.org/10.1257/mac.1.2.29

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