Topics in Macroeconomics with Heterogeneous Agents

Course Outline

The course provides an introduction to the models and methods used to study inequality across individuals and its aggregate implications. The first part of the course introduces the workhorse heterogeneous-agents consumption framework iand applies it to the study of consumption and wealth inequality. The second part of the course studies under which conditions individual heterogeneity affects aggregate macroeconomic outcomes and alternative ways to keep track of it in a tractable way. The topics covered are:

  • Consumption, Saving, Labor Supply and Retirement
  • Consumption and Earnings Risk
  • Savings and Wealth Inequality
  • Aggregation
  • Heterogeneity and Nominal Rigidities

 

Assessment method

Written exam or task.

Reading list

1. Consumption, Savings, Labor Supply, and Retirement

Main readings[1]

*Gourinchas and Parker “Consumption over the Life-Cycle,” 2002, Econometrica, vol. 70 no. 1 pp.47-90.

*French “The Effects of Health, Wealth, and Wages on Labor Supply and Retirement Behavior”, 2005, Review of Economic Studies, 72(2), pp. 395-427.

French and Jones “The Effects of Health Insurance and Self-Insurance on Retirement Behaviour,” 2011 Econometrica, 79(3), pp. 693-732.

Dynan, Skinner and Zeldes “Do the Rich Save More?” 2004, Journal of Political Economy, vol. 112, pp 397-444. https://www.dartmouth.edu/ jskinner/documents/DynanKEDotheRich.pdf

Carroll (2000), “Why Do the Rich Save So Much?,” in Does Atlas Shrug? The Economic Consequences of Taxing the Rich, ed. by Joel B. Slemrod. Harvard University Press, http://www.econ.jhu.edu/people/ccarroll/Why.pdf .

Fagereng, Holm, Moll, and Natvik (2019), “Saving Behavior across the Wealth Distribution: The Importance of Capital Gains”, Mimeo.

Additional readings

Cagetti (2003), “Wealth Accumulation over the Life Cycle and Precautionary Savings,” Journal of Business and Economic Statistics, 21(3), pp. 339-353.

Hubbard, Skinner, and Zeldes (1994), “The Importance of Precautionary Motives for Explaining Individual and Aggregate Saving,” Carnegie-Rochester Series on Public Policy 40, 59-112.

Hubbard, Skinner, and Zeldes (1995), “Precautionary Savings and Social Insurance,” Journal of Political Economy 103(2), 360-399.

O’Dea (2018), “Insurance, efficiency and the design of public pensions”, Meeting Papers, 1037, Society for Economic Dynamics.

Scholz, Seshadri and Khitatrakun (2006), “Are Americans Saving “Optimally” for Retirement?”, Journal of Political Economy, August, v. 114, n.4, pp. 607-643.

Venti and Wise (2001), “Choice, Chance and Wealth Dispersion at Retirement,” in S. Ogura, T. Tachibanaki, and D.A. Wise, (eds.), Aging Issues in the United States and Japan, University of Chicago.

 

2. Eanings and Consumption Risk

Main readings

*Storesletten, Telmer, Yaron (2001), “Consumption and Risk Sharing over the Life Cycle,” Journal of Monetary Economics, vol. 51 n. 3, pp. 609-633.

*Blundell, Pistaferri and Preston (2008), ‘Consumption inequality and partial insurance’, The American Economic Review pp. 1887-1921.

Attanasio and Davis (1996), ‘Relative wage movements and the distribution of consumption’, Journal of Political Economy104, 1227–62

Heathcote, Perri and Violante (2010), ‘Unequal we stand: An empirical analysis of economic inequality in the United States, 1967-2006’, Review of Economic Dynamics13(1), 15–51.

Guvenen (2007): “Learning your earning: Are labor income shocks really very persistent?,”The American Wconomic Review, 97(3), 687–712.

Arellano, Blundell, and Bonhomme (2017), “Household Earnings and Consumption: A Nonlinear Framework,”

Guvenen,  Karahan, Ozkan, and Song (2019): “What do data on millions of US workers reveal about life-cycle earnings risk?,” Discussion paper, National Bureau of Economic Research.

Guvenen, Ozkan, and Song, “The Nature of Countercyclical Income Risk,” Journal of Political Economy, 122 (3):621-660.

De Nardi, Fella, and Paz Pardo (2019), “Nonlinear household earnings dynamics, self-insurance, and welfare,” Journal of the European Economic Association, forthcoming.

Additional readings

Attanasio and Pavoni (2011): “Risk sharing in private information models withasset accumulation: Explaining the excess smoothness of consumption,” Econometrica, 79(4),1027–1068

Attanasio, Meghir, Mommaert “Insurance in Extended Family Networks,” 2019.

Blundell “Income Dynamics and Life-cycle Inequality: Mechanisms and Controversies”, 2014, The Economic Journal 124(576), 289-318.

Blundell, Graber, and Mogstad “Labor income dynamics and the insurance from taxes, transfers and the family,” 2015, Journal of Public Economics pp. 127, 58-73.

Blundell, Pistaferri and Saporta-Eksten (2016), ‘Consumption inequality and family labor supply’, American Economic Review 106(2): 387–435.

Deaton and Paxson (1994), ‘Intertemporal choice and inequality’,Journalof Political Economy102(3), 437–67.40

De Nardi, Fella, and Paz Pardo (2019), “Household Earnings Risk, Government Policy, and Welfare in the U.K.”, work in progress.

Fella, Frache, and Koeniger (2019): “Buffer-stock savings and households  response to income shocks,” .

Guvenen, and Smith (2014): “Inferring Labor Income Risk and Partial Insurance From Economic Choices,”Econometrica, 82(6), 2085–2129.

Kaplan (2012), “Inequality and the life cycle,”  Quantitative Economics, 3(2), pp. 471-525.

Krueger and Wu (2018), “How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply?,” Mimeo..

Primiceri and Van Rens (2009), ‘Heterogeneous life-cycle profiles, incomerisk and consumption inequality’, Journal of Monetary Economics56(1), 20–39.

Storesletten, Telmer, Yaron (2001), “How Important Are Idiosyncratic Shocks? Evidence from Labor Supply,” American Economic Review, May, vol. 91 n. 2, 413-17.

 

3. Savings and Wealth Inequality

Main readings

* De Nardi and Fella (2017), ‘Saving and wealth inequality’, Review of Economic Dynamics 26, 280–300

Diaz-Gimenez, Quadrini, and Rios-Rull (1997), “Dimensions of Inequality: Facts on the U.S. Distributions of Earnings, Income, and Wealth,” Federal Reserve Bank of Minneapolis Quarterly Review, vol.21, no.2, pp.2-21.

Kuhn and Rıos-Rull (2015), ‘2013 update on the us earnings, incomeand wealth distributional facts: a view from macroeconomics’, Working paper.

Huggett (1996), “Wealth Distribution in Life-Cycle Economies,” Journal of Monetary Economics, vol. 38, no. 3, pp 469-494.

De Nardi (2004), “Wealth Inequality and Intergenerational Links,” Review of Economic Studies, vol. 71, n. 3, pp. 743-768.

Castañeda, Diaz-Gimenez and Rios-Rull “Accounting for Earnings and Wealth Inequality,” 2003, Journal of Political Economy, vol. 111, no. 4, August, pp. 818-57.

Cagetti and De Nardi (2006), “Entrepreneurship, Frictions and Wealth,” Journal of Political Economy, vol. 114, n. 5, pp. 835-870.

Benhabib, and Bisin (2018), "Skewed Wealth Distributions: Theory and Empirics." Journal of Economic Literature, 56 (4): 1261-91.

Gabaix, Lasry, Lions, and Moll (2016), The Dynamics of Inequality. Econometrica, 84: 2071-2111.

 Additional readings

Atif Mian, Ludwig Straub, and Amir Sufi (2019), “The Saving Glut of the Rich and the Rise in Household Debt.” Mimeo.

Benhabib, Bisin, and Zhu (2011), “The Distribution of Wealth and Fiscal Policy in Economies with Finitely-Lived Agents,”  Econometrica 79(1), 123-157.

Budria, Diaz-Gimenez, Quadrini and Rios-Rull (2001), “New Facts on the Distributions of Earnings, Income and Wealth,” .

Cagetti and De Nardi (2009), “Estate Taxation, Entrepreneurship, and Wealth,” American Economic Review, vol. 99 n. 1, pp. 85-111.

Davies and Shorrocks (2000), “The Distribution of Wealth,” in Handbook of Income Distribution”,  vol. 1, 605-675.

Diaz-Luengo Prado “The Wealth Distribution with Durable Goods,” 2010, International Economic review, vol. 51 n. 1, pp. 143-170.

Piketty “Capital in the 21st Century,” 2014, Harvard University Press.

Quadrini (2000), “Entrepreneurship, saving, and social mobility,” Review of Economic Dynamics, 3(1), 1–40.

Quadrini and Rios-Rull (2015), “Inequality in Macroeconomics,” forthcoming in NH Handbook of Income Distribution, volume 2B A.B. Atkinson and F.J. Bourguignon (Eds.) Chapter 15.

 

4. Aggregation

Main readings

* Aiyagari “Uninsured Idiosyncratic Risk and Aggregate Saving,” (1994), Quarterly Journal of Economics 109(3), 659-684.

* Krusell and Smith (1998), “Income and Wealth Heterogeneity in the Macroeconomy.” Journal of Political Economy, vol. 106, no. 5, pp. 867–896.

Krueger, Mitman and Perri (2016), "Macroeconomics and Household Heterogeneity," in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, volume 2, chapter 1, pages 843-921.

Caselli and Ventura (2000) “A representative consumer theory of distribution,” American Economic Review, 90 (4): 909-926.

Maliar and Maliar (2003) “The representative consumer in the neoclassical growth model with idiosyncratic risk,” Review of Economic Dynamics 6(2),  362-380,

Reiter (2009), Solving heterogeneous-agent models byprojection and perturbation,Journal of Economic Dynamicsand Control,32, 1120-1155.

Winberry (2016), “A toolbox for solving and estimatingheterogeneous agent macro models.” Available athttp://faculty.chicagobooth.edu/thomas.winberry/research/winberryAlgorithm.pdf

Ahn, Kaplan, Moll, Winberry and Wolf (2017), "When Inequality Matters for Macro and Macro Matters for Inequality," NBER Chapters, in: NBER Macroeconomics Annual 2017, volume 32, pages 1-75, National Bureau of Economic Research, Inc.

Auclert, Bardóczy, Rognlie and Straub (2019), “Using the Sequence-Space Jacobian to Solve and Estimate Heterogeneous-Agent Models,” Mimeo.

 

5. Aggregate models with nominal rigidities (HANK)

Main readings

* Acharya and Dogra (2019), "Understanding HANK: Insights from a PRANK," Mimeo.

* Kaplan, Moll, and Violante (2018), "Monetary Policy According to HANK." American Economic Review, 108 (3): 697-743.

Werning (2015), “Incomplete markets and aggregate demand,”  Mimeo.

Ravn and Sterk (2016), "Macroeconomic Fluctuations with HANK & SAM: An Analytical Approach," Mimeo,

Den Haan, Rendahl and Riegler (2018), “Unemployment (Fears) and Deflationary Spirals,” Journal of the European Economic Association, Volume 16, Issue 5, 1281–1349.

Gornemann, Kuester, and Nakajima (2016), "Doves for the Rich, Hawks for the Poor? Distributional Consequences of Monetary Policy," Mimeo

Guerrieri and Lorenzoni (2017), "Credit Crises, Precautionary Savings, and the Liquidity Trap," Quarterly Journal of Economics

Bayer, Luetticke, Pham‐Dao and Tjaden (2019), Precautionary Savings, Illiquid Assets, and the Aggregate Consequences of Shocks to Household Income Risk. Econometrica, 87: 255-290.



[1]      The ordering of  the main readings is pedagogical. Starred articles constitute required reading.