Implications of wealth heterogeneity for macroeconomics

Arbeitspapier

Today's dominant strain of macroeconomic models supposes that aggregate consumption can be understood by assuming the existence of a 'representative agent' whose behavior rationalizes observed outcomes. But representative agent models yield embarrassingly implausible (and empirically inaccurate) descriptions of consumption behavior. When push comes to shove, real-world forecasters (including those at the Fed) properly disregard these implications. As a result, consumption forecasting remains very much a seat-of-the-pants enterprise. I will argue that if the representative agent assumption is replaced with a model that generates wealth heterogeneity that matches the empirical data, the improved model can provide a sensible analysis of economic questions like "What might the consumption response be to economic stimulus payments?"

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 597

Classification and Topics

• Classification: Wirtschaft ; Consumer Economics: Empirical Analysis ; Personal Income, Wealth, and Their Distributions ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Macroeconomics: Consumption; Saving; Wealth
• Subject: Microfoundations ; Wealth Inequality ; Marginal Propensity to Consume

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Carroll, Christopher D.
• Event: Veröffentlichung
• (who): The Johns Hopkins University, Department of Economics
• (where): Baltimore, MD
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/101355
• Last update: 10.03.2025, 11:43 AM CET