Can a Representative-Agent Model Represent a Heterogeneous-Agent Economy?

Sungbae An, Yongsung Chang and Sun-Bin Kim
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Sungbae An: SMU

Microeconomics Working Papers from East Asian Bureau of Economic Research

Abstract: Accounting for observed fluctuations in aggregate employment, consumption, and real wage using the optimality conditions of a representative household requires preferences that are incompatible with economic priors. In order to reconcile theory with data, we construct a model with heterogeneous agents whose decisions are difficult to aggregate because of incomplete capital markets and the indivisible nature of labor supply. If we were to explain the model-generated aggregate time series using decisions of a stand-in household, such a household must have a non-concave or unstable utility as is often found with the aggregate U.S. data.

Keywords: Representative-Agent Model; Heterogeneous Agent; Macroeconomics (search for similar items in EconPapers)
JEL-codes: E24 E32 J21 J22 (search for similar items in EconPapers)
Date: 2008-01
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Can a Representative-Agent Model Represent a Heterogeneous-Agent Economy (2009)
Working Paper: Can a Representative-Agent Model Represent a Heterogeneous-Agent Economy? (2008)
Working Paper: Can a Representative Agent Model Represent a Heterogeneous Agent Economy? (2007)
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