Can a representative-agent model represent a heterogeneous-agent economy

Sungbae An, Yong Sung Chang, Sun Bin Kim

Research output: Contribution to journalArticle

15 Citations (Scopus)

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 nonconcave or unstable utility as is often found with the aggregate US data.

Original languageEnglish
Pages (from-to)29-54
Number of pages26
JournalAmerican Economic Journal: Macroeconomics
Volume1
Issue number2
DOIs
Publication statusPublished - 2009 Aug 1

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Heterogeneous agents
Representative agent
Household
Economics
Capital markets
Fluctuations
Real wages
Labor supply
Optimality conditions

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)

Cite this

An, Sungbae ; Chang, Yong Sung ; Kim, Sun Bin. / Can a representative-agent model represent a heterogeneous-agent economy. In: American Economic Journal: Macroeconomics. 2009 ; Vol. 1, No. 2. pp. 29-54.
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Can a representative-agent model represent a heterogeneous-agent economy. / An, Sungbae; Chang, Yong Sung; Kim, Sun Bin.

In: American Economic Journal: Macroeconomics, Vol. 1, No. 2, 01.08.2009, p. 29-54.

Research output: Contribution to journalArticle

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