Implications of Wealth Heterogeneity for Macroeconomics

Download or read book Implications of Wealth Heterogeneity for Macroeconomics written by Chris Carroll and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Today's dominant strain of macroeconomic models supposes that aggregate consumption can be understood by assuming the existence of a 'representative agent' whose behavior rationalizes observed outcomes. But representative agent models yield embarrassingly implausible (and empirically inaccurate) descriptions of consumption behavior. When push comes to shove, real-world forecasters (including those at the Fed) properly disregard these implications. As a result, consumption forecasting remains very much a seat-of-the-pants enterprise. I will argue that if the representative agent assumption is replaced with a model that generates wealth heterogeneity that matches the empirical data, the improved model can provide a sensible analysis of economic questions like "What might the consumption response be to economic stimulus payments?"--Microfoundations ; Wealth Inequality ; Marginal Propensity to Consume