Replication data for: Microeconomic Heterogeneity and Macroeconomic Shocks

Summary:  View help for Summary In this essay, we discuss the emerging literature in macroeconomics that combines heterogeneous agent models, nominal rigidities, and aggregate shocks. This literature opens the door to the analysis of distributional issues, economic fluctuations, and stabilization policies—all within the same framework. In response to the limitations of the representative agent approach to economic fluctuations, a new framework has emerged that combines key features of heterogeneous agents (HA) and New Keynesian (NK) economies. These HANK models offer a much more accurate representation of household consumption behavior and can generate realistic distributions of income, wealth, and, albeit to a lesser degree, household balance sheets. At the same time, they can accommodate many sources of macroeconomic fluctuations, including those driven by aggregate demand. In sum, they provide a rich theoretical framework for quantitative analysis of the interaction between cross-sectional distributions and aggregate dynamics. In this article, we outline a state-of-the-art version of HANK together with its representative agent counterpart, and convey two broad messages about the role of household heterogeneity for the response of the macroeconomy to aggregate shocks: 1) the similarity between the Representative Agent New Keynesian (RANK) and HANK frameworks depends crucially on the shock being analyzed; and 2) certain important macroeconomic questions concerning economic fluctuations can only be addressed within heterogeneous agent models.

JEL Classification:  View help for JEL Classification
      D11 Consumer Economics: Theory
      E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
      E21 Macroeconomics: Consumption; Saving; Wealth
      E23 Macroeconomics: Production
      E32 Business Fluctuations; Cycles
      E63 Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
      G01 Financial Crises