Heterogeneous Households in a Sticky Price Model

Jae Won Lee

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: This paper introduces heterogeneous households into an otherwise standard sticky-price model with industry-specific labor markets. Households differ in labor incomes and asset markets are incomplete. I show that household heterogeneity affects equilibrium dynamics nontrivially by amplifying price stickiness endogenously through wealth effects on labor supply. To quantify the importance of household heterogeneity in amplifying stickiness, I estimate and compare representative and heterogeneous household models. The quantitative exercise shows the heterogenous household model performs better than its representative counterpart in accounting for aggregate and sectoral dynamics in the U.S., while being more consistent with empirical evidence on nominal rigidity at the aggregate and sectoral levels, thanks to the stickiness endoge

Keywords: DSGE model; heterogeneity; multiple sectors; real rigidities; price stickiness (search for similar items in EconPapers)
JEL-codes: E (search for similar items in EconPapers)
Pages: 20 pages
Date: 2010-02-12
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:201001

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