Idiosyncratic Income Risk and Aggregate Fluctuations

Davide Debortoli and Jordi Galí

American Economic Journal: Macroeconomics, 2024, vol. 16, issue 4, 279-310

Abstract: We study how the presence of idiosyncratic income risk affects aggregate fluctuations in the absence of binding borrowing constraints and/or cyclical income risk. Its impact is shown to be captured by the response of a consumption-weighted average of individual consumption risk to aggregate shocks. We analyze two example economies—an endowment economy and a New Keynesian economy—and show that, under plausible calibrations, the impact of idiosyncratic income risk on aggregate fluctuations is quantitatively small since most of the changes in consumption risk are concentrated among poorer (low-consumption) households.

JEL-codes: E12 E21 E24 E32 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: Idiosyncratic Income Risk and Aggregate Fluctuations (2022)
Working Paper: Idiosyncratic Income Risk and Aggregate Fluctuations (2022)
Working Paper: Idiosyncratic Income Risk and Aggregate Fluctuations (2021)
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DOI: 10.1257/mac.20220382

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