Intergenerational Redistribution in the Great Recession

Andy Glover, Jonathan Heathcote, Dirk Krueger and José-Víctor Ríos-Rull

No 16924, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we construct a stochastic overlapping-generations general equilibrium model in which households are subject to aggregate shocks that affect both wages and asset prices. We use a calibrated version of the model to quantify how the welfare costs of severe recessions are distributed across different household age groups. The model predicts that younger cohorts fare better than older cohorts when the equilibrium decline in asset prices is large relative to the decline in wages, as observed in the data. Asset price declines hurt the old, who rely on asset sales to finance consumption, but benefit the young, who purchase assets at depressed prices. In our preferred calibration, asset prices decline more than twice as much as wages, consistent with the experience of the US economy in the Great Recession. A model recession is approximately welfare-neutral for households in the 20-29 age group, but translates into a large welfare loss of around 10% of lifetime consumption for households aged 70 and over.

JEL-codes: D31 D58 D91 E21 (search for similar items in EconPapers)
Date: 2011-04
New Economics Papers: this item is included in nep-cba and nep-dge
Note: EFG
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Citations: View citations in EconPapers (33)

Published as Andrew Glover & Jonathan Heathcote & Dirk Krueger & José-Víctor Ríos-Rull, 2020. "Intergenerational Redistribution in the Great Recession," Journal of Political Economy, vol 128(10), pages 3730-3778.

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Related works:
Journal Article: Intergenerational Redistribution in the Great Recession (2020)
Working Paper: Intergenerational Redistribution in the Great Recession (2014)
Working Paper: Intergenerational Redistribution in the Great Recession (2011)
Working Paper: Intergenerational redistribution in the Great Recession (2011)
Working Paper: Intergenerational Redistribution in the Great Recession (2011)
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