Can a Representative-Agent Model Represent a Heterogeneous-Agent Economy

Author

Sungbae AN, Singapore Management UniversityFollow
Yongsung CHANG, University of Rochester
Sun-Bin KIM, Korea University

Publication Type

Journal Article

Version

publishedVersion

Publication Date

7-2009

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

Macroeconomics

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

Citation

AN, Sungbae; CHANG, Yongsung; and KIM, Sun-Bin. Can a Representative-Agent Model Represent a Heterogeneous-Agent Economy. (2009). American Economic Journal: Macroeconomics. 1, (2), 29-54.
Available at: https://ink.library.smu.edu.sg/soe_research/544

Copyright Owner and License

Authors

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

Additional URL

https://doi.org/10.1257/mac.1.2.29