Labor-Market heterogeneity, aggregation, and policy (in)variance of dsge model parameters

Yongsung Chang, Sun Bin Kim, Frank Schorfheide

Research output: Contribution to journalArticle

12 Citations (Scopus)

Abstract

Data from a heterogeneous-agents economy with incomplete asset markets and indivisible labor supply are simulated under various fiscal policy regimes and an approximating representative-agent model is estimated. Preference and technology parameter estimates of the representative-agent model are not invariant to policy changes and the bias in the representative-agent model's policy predictions is large compared to predictive intervals that reflect parameter uncertainty. Since it is not always feasible to account for heterogeneity explicitly, it is important to recognize the possibility that the parameters of a highly aggregated model may not be invariant with respect to policy changes.

Original languageEnglish
Pages (from-to)193-220
Number of pages28
JournalJournal of the European Economic Association
Volume11
Issue numberSUPPL. 1
DOIs
Publication statusPublished - 2013 Jan 1

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All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)

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