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Models of Aggregate Economic Relationships that Account for Heterogeneity

Опубликовано на портале: 29-08-2003
Amsterdam: North-Holland, 2000
Тематический раздел:
The key concern of this chapter is to assess the importance of individual heterogeneity for understanding the relationships between economic aggre- gates. We highlight three aspects: (i) heterogeneity in individual tastes, (ii) heterogeneity in market participation and (iii) heterogeneity in (uninsur- able) risks faced by individuals. The central question addressed is whether one can track, predict or explain variation in economic aggregates in a way that captures the separate inЯuences of behavioral responses and hetero- geneity across individuals. Recent solutions to aggregation problems in certain speciЮc application areas are presented. The aim is to address the concerns faced by empirical researchers regarding questions of aggregation.

Contents

1. Introduction

2. Heterogeneity, Consumer Demand and Aggregation Factors
2.1 Aggregation of Consumer Demand Relationships
 2.1.1 Various Approaches: Income Heterogeneity Alone
 2.1.2 Exact Aggregation and Distributional Characteristics
 2.1.3 Budget Share Models and Rank Restrictions
 2.1.4 Aggregation Factors
 2.1.5 Aggregation in Some Rank Two and Rank Three Models
 2.1.6 Demographic Composition and Observable Attributes
2.2 Empirical Regularities and the Specification of Aggregate Demand Models
 2.2.1 What do Individual Demands Look Like?
 2.2.2 The Implications for Aggregate Behavior

3. Aggregation and Dynamic Behavior
3.1 Aggregation and the Consumption Growth Relationship
 3.1.1 Idiosyncratic Income Variation and Aggregate Shocks
 3.1.2 Uninsurable Income Shocks
 3.1.3 Fully Insurable Income Shocks
 3.1.4 Incomplete Information
3.2 The Aggregate Consumption Growth Relationship with Precautionary Saving
 3.2.1 Case I: Full Insurance
 3.2.2 Unanticipated Real Interest Rate Shocks
 3.2.3 Case II: Uninsurable Idiosyncratic Risk
3.3 Empirical Evidence on Aggregating the Consumption Growth Relationship
 3.3.1 Evidence on Full Insurance and Risk Pooling Across Consumers
 3.3.2 Aggregation Factors and Consumption Growth

4. Aggregation and Selection
4.1 Aggregate Wages and Participation
 4.1.1 Basic Wage Framework
 4.1.2 Micro Regressions
 4.1.3 Aggregate Equations
 4.1.4 Discussion
 4.1.5 Empirical Analysis of British Wages
4.2 Consumption Growth and Liquidity Constraints
 4.2.1 Evidence for Liquidity Constraints
 4.2.2 Basic Framework for Consumption and Liquidity Constraints
 4.2.3 Aggregate Formulations

5. Summary and Conclusion

A Appendix: Normal and Lognormal Aggregation Formulae