When Does Household Heterogeneity Matter for Aggregate Fluctuations?

Zheng Gong ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: I establish the existence of a distributionally neutral benchmark for aggregate shock transmission in incomplete-market heterogeneous-agent (HA) economies, where all agents are equally exposed to the shock. In this benchmark, aggregates satisfy the equilibrium conditions of a fictitious representative-agent (RA) economy. Leveraging this result, I develop a tractable framework to identify and quantify redistribution mechanisms that drive the divergence between HA and RA outcomes. The framework (i) uncovers the mapping from deep structural parameters to redistribution and (quantitatively) to general-equilibrium dynamics; (ii) clarifies the roles of fiscal policy and investment; (iii) provides rescalable sufficient statistics portable across shock types; and (iv) identifies new redistribution channels in two-asset HANK and overlapping generation models.

Keywords: Heterogeneous households; Monetary Policy; Fiscal Policy; Incomplete markets; Inequality; Business cycles. (search for similar items in EconPapers)
JEL-codes: D31 E21 E43 E52 E62 (search for similar items in EconPapers)
Pages: 79
Date: 2025-01, Revised 2025-09
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2025_624v2

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