EconPapers    
Economics at your fingertips  
 

Labor-Market Heterogeneity, Aggregation, and the Lucas Critique

Yongsung Chang () and Frank Schorfheide ()

No 8039, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper assesses biases in policy predictions due to the lack of invariance of ``structural'' parameters in representative-agent models. We simulate data under various fiscal policy regimes from a heterogeneous-agents economy with incomplete asset markets and indivisible labor supply. Imperfect aggregation manifests itself through preference shocks in the estimated representative-agent model. Preference and technology parameter estimates are not invariant with respect to policy changes. As a result, the bias in the representative-agent model's policy predictions is large compared to the length of predictive intervals that reflect parameter uncertainty.

Keywords: Aggregation; Fiscal Policy; Heterogeneous Agents Economy; Lucas Critique; Representative Agent Model (search for similar items in EconPapers)
JEL-codes: C11 C32 E32 E62 (search for similar items in EconPapers)
Date: 2010-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=8039 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Labor-Market Heterogeneity, Aggregation, and the Lucas Critique (2010) Downloads
Working Paper: Labor-Market Heterogeneity, Aggregation, and the Lucas Critique (2010) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:8039

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=8039

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2019-04-18
Handle: RePEc:cpr:ceprdp:8039