TY  - JOUR
AU  - Ahn, SeHyoun
AU  - Kaplan, Greg
AU  - Moll, Benjamin
AU  - Winberry, Thomas
AU  - Wolf, Christian
TI  - When Inequality Matters for Macro and Macro Matters for Inequality
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 23494
PY  - 2017
Y2  - June 2017
DO  - 10.3386/w23494
UR  - http://www.nber.org/papers/w23494
L1  - http://www.nber.org/papers/w23494.pdf
N1  - Author contact info:
SeHyoun Ahn
Norges Bank
Bankplassen 2
Oslo 0153
Norway
E-Mail: sehyoun.ahn@gmail.com

Greg Kaplan
Department of Economics
University of Chicago
1126 E 59th St
Chicago, IL 60637
E-Mail: gkaplan@uchicago.edu

Benjamin Moll
London School of Economics
Houghton Street
London WC2A 2AE
United Kingdom
Tel: 609/258-0329
E-Mail: b.moll@lse.ac.uk

Thomas Winberry
University of Pennsylvania
2300 Steinberg-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
Tel: 215-898-7622
E-Mail: twinb@wharton.upenn.edu

Christian K. Wolf
Becker Friedman Institute
University of Chicago
5757 S. University Avenue
Chicago, IL 60637
E-Mail: christian.k.wolf@gmail.com
M1  - published as SeHyoun Ahn, Greg Kaplan, Benjamin Moll, Thomas Winberry, Christian Wolf. "When Inequality Matters for Macro and Macro Matters for Inequality," in Martin Eichenbaum and Jonathan A. Parker, editors, "NBER Macroeconomics Annual 2017, volume 32" University of Chicago Press (2018)

M3  - presented at "32nd Annual Conference on Macroeconomics", April 7-8, 2017
AB  - We develop an efficient and easy-to-use computational method for solving a wide class of general equilibrium heterogeneous agent models with aggregate shocks, together with an open source suite of codes that implement our algorithms in an easy-to-use toolbox. Our method extends standard linearization techniques and is designed to work in cases when inequality matters for the dynamics of macroeconomic aggregates. We present two applications that analyze a two-asset incomplete markets model parameterized to match the distribution of income, wealth, and marginal propensities to consume. First, we show that our model is consistent with two key features of aggregate consumption dynamics that are difficult to match with representative agent models: (i) the sensitivity of aggregate consumption to predictable changes in aggregate income and (ii) the relative smoothness of aggregate consumption.  Second, we extend the model to feature capital-skill complementarity and show how factor-specific productivity shocks shape dynamics of income and consumption inequality.
ER  -