Working Paper: NBER ID: w14768
Authors: Jonathan Heathcote; Kjetil Storesletten; Giovanni L. Violante
Abstract: Macroeconomics is evolving from the study of aggregate dynamics to the study of the dynamics of the entire equilibrium distribution of allocations across individual economic actors. This article reviews the quantitative macroeconomic literature that focuses on household heterogeneity, with a special emphasis on the "standard" incomplete markets model. We organize the vast literature according to three themes that are central to understanding how inequality matters for macroeconomics. First, what are the most important sources of individual risk and cross-sectional heterogeneity? Second, what are individuals' key channels of insurance? Third, how does idiosyncratic risk interact with aggregate risk?
Keywords: No keywords provided
JEL Codes: E2; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| idiosyncratic uninsurable income risk (G52) | precautionary saving (D14) |
| precautionary saving (D14) | aggregate wealth (E10) |
| precautionary saving (D14) | equilibrium interest rate (E43) |
| changes in timing of taxes (H26) | heterogeneous agent behavior (D91) |
| heterogeneous agent behavior (D91) | real economic effects (F69) |
| changes in magnitude and insurability of idiosyncratic risk (G52) | aggregate labor productivity (O47) |