Abstract

How do movements in the distribution of income and wealth affect the macroeconomy? We analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity. Our main finding is that, in the stationary stochastic equilibrium, the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution. This result is robust to substantial changes in both parameter values and model specification. Our benchmark model, whose only difference from the representative‐agent framework is the existence of uninsurable idiosyncratic risk, displays far less cross‐sectional dispersion and skewness in wealth than U.S. data. However, an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data. Furthermore, this extension features aggregate time series that depart significantly from permanent income behavior.

1. 1. This material content is developed to serve as a GUIDE for students to conduct academic research work
2. 2. As a source for additional understanding of the subject.
3. 3. As a source for ideas for your own research work (if properly referenced).
4. 4. For PROPER paraphrasing (see your university definition of plagiarism and acceptable paraphrase)
5. 5. Direct citing (if referenced properly)
Thank you so much for your respect to the authors copyright.