TY - JOUR
T1 - Labor-Market heterogeneity, aggregation, and policy (in)variance of dsge model parameters
AU - Chang, Yongsung
AU - Kim, Sun Bin
AU - Schorfheide, Frank
PY - 2013/1
Y1 - 2013/1
N2 - 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.
AB - 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.
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U2 - 10.1111/j.1542-4774.2012.01098.x
DO - 10.1111/j.1542-4774.2012.01098.x
M3 - Article
AN - SCOPUS:84871982193
SN - 1542-4774
VL - 11
SP - 193
EP - 220
JO - Journal of the European Economic Association
JF - Journal of the European Economic Association
IS - SUPPL. 1
ER -