Heterogeneity and Aggregate Fluctuations

Minsu Chang, Xiaohong Chen (xiaohong.chen@yale.edu) and Frank Schorfheide

No 28853, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a state-space model with a state-transition equation that takes the form of a functional vector autoregression and stacks macroeconomic aggregates and a cross-sectional density. The measurement equation captures the error in estimating log densities from repeated cross-sectional samples. The log densities and the transition kernels in the law of motion of the states are approximated by sieves, which leads to a finite-dimensional representation in terms of macroeconomic aggregates and sieve coefficents. We use this model to study the joint dynamics of technology shocks, per capita GDP, employment rates, and the earnings distribution. We find that the estimated spillovers between aggregate and distributional dynamics are generally small, a positive technology shock tends to decrease inequality, and a shock that raises the inequality of earnings leads to a small but not significant increase in GDP.

JEL-codes: C11 C32 C52 E32 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-mac
Note: EFG
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Citations: View citations in EconPapers (15)

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Related works:
Working Paper: Heterogeneity and Aggregate Fluctuations (2021)
Working Paper: Heterogeneity and Aggregate Fluctuations (2021)
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