Macroeconomic Implications of Cross-Sectional Variation

National Bureau Of Economic Research Inc, Cambridge MA

Investigators

Abstract

The main premise behind the project is that variation at the microeconomic level is important for understanding variation at the macroeconomic level. Our research agenda involves the development and evaluation of heterogeneous agent, general equilibrium life-cycle models which are amenable to quantitative analysis and which provide for an effective interaction with panel data on income, earnings, consumption and wealth. The economic questions to which we apply this methodology include: the implications of time variation in measures of inequality for understanding stock market behavior; the importance of the intergenerational risk sharing role played by social security and the welfare implications of various reforms; and the importance of imperfect risk sharing for understanding inequality in income, wealth and consumption. Future work will include optimal portfolio choice over the life cycle, the implications of changes in demographic structure for financial markets, questions related to housing and portfolio choice, and the extent to which extreme events at the microeconomic level have important consequences for aggregate prices and quantities. The outcome of the project should be a deeper understanding of the implications of cross-sectional variation for aggregate outcomes, financial markets and asset prices. The long- term goal is to contribute to the development of a class of macroeconomic and financial models in which cross-sectional distributions play a fundamental role.