EconPapers    
Economics at your fingertips  
 

Labor-Market Heterogeneity, Aggregation, and the Lucas Critique

Yongsung Chang (), Sun-Bin Kim () and Frank Schorfheide ()

No 556, RCER Working Papers from University of Rochester - Center for Economic Research (RCER)

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 Models. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-dge
Date: 2010-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

Downloads: (external link)
http://rcer.econ.rochester.edu/RCERPAPERS/rcer_556.pdf full text (application/pdf)
None

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:roc:rocher:556

Access Statistics for this paper

More papers in RCER Working Papers from University of Rochester - Center for Economic Research (RCER) University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by Richard DiSalvo ().

 
Page updated 2019-10-20
Handle: RePEc:roc:rocher:556