Shocks, Frictions, and Inequality in US Business Cycles

Christian Bayer, Benjamin Born and Ralph Luetticke

No 14364, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We show how a heterogeneous-agent New-Keynesian (HANK) model with incom- plete markets and portfolio choice can be estimated in state space using a Bayesian approach. To render estimation feasible, the structure of the economy can be exploited and the dimensionality of the model automatically reduced based on the Bayesian priors. We apply this approach to analyze how much inequality matters for the business cycle and vice versa. Even when the model is estimated on aggregate data alone and with a set of shocks and frictions designed to match aggregate data, it broadly reproduces observed US inequality dynamics.

Keywords: Incomplete markets; Business cycles; Monetary and fiscal policy; Bayesian estimation; Wealth inequality; Income inequality (search for similar items in EconPapers)
JEL-codes: C11 E32 E63 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (31)

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Related works:
Journal Article: Shocks, Frictions, and Inequality in US Business Cycles (2024)
Working Paper: Shocks, Frictions, and Inequality in US Business Cycles (2020)
Working Paper: Shocks, Frictions, and Inequality in US Business Cycles (2020)
Working Paper: Shocks, Frictions, and Inequality in US Business Cycles (2019)
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