Macroeconomics and Household Heterogeneity

By Dirk Krueger, K. Mitman, Fabrizio Perri. 2016

254 citations recorded by the source corpus.

The goal of this chapter is to study how, and by how much, household income, wealth, and preference heterogeneity amplify and propagate a macroeconomic shock. We focus on the U.S. Great Recession of 2007-2009 and proceed in two steps. First, using data from the Panel Study of Income Dynamics, we document the patterns of household income, consumption and wealth inequality before and during the Great Recession. We then investigate how households in different segments of the wealth distribution were affected by income declines, and how they changed their expenditures differentially during the aggregate downturn. Motivated by this evidence, we study several variants of a standard heterogeneous household model with aggregate shocks and an endogenous cross-sectional wealth distribution. Our key finding is that wealth inequality can significantly amplify the impact of an aggregate shock, and it does so if the distribution features a sufficiently large fraction of households with very little net worth that sharply increase their saving (i.e. they are not hand-to mouth) as the recession hits. We document that both these features are observed in the PSID. We also investigate the role that social insurance policies, such as unemployment insurance, play in shaping the cross-sectional income and wealth distribution, and through it, the dynamics of business cycles.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/5e230eee9bc18aa7d14928732a1b7acc47897b01

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

In Economics and Econometrics

Citations in the corpus

MPC Heterogeneity and Household Balance Sheets (2016, unknown): “…on household characteristics, in particular data on wealth and balance sheets as these play a central role in contemporary structural models of consumption dynamics, see for instance Kaplan and Violante (2014), Carroll, Slacalek, Tokuoka, and White (2014) and Krueger, Mitman, and Perri (2016).”
The Fiscal Multiplier (2019, unknown): “Productivity Process Krueger et al. (2016) use data from the Panel Study of Income Dynamics to estimate a stochastic process for labor productivity.”
CENTRAL BANK POLICIES AND INCOME AND WEALTH INEQUALITY: A SURVEY (2019, unknown): “According to Krueger et al. (2016), the lowest three quintiles of the income distribution earn about 15% of aggregate income.”
Microeconomic Heterogeneity and Macroeconomic Shocks (2018, unknown): “Similarly, Krueger et al. (2016) examine the effectiveness of unemployment insurance in mitigating the fall in aggregate expenditures during the crisis.”
Saving and Wealth Inequality (2017, unknown): “See Quadrini and Ŕıos-Rull (2014), Krusell and Smith (2006), Guvenen (2016), and Heatcote et al. (2009) for surveys on this, and Conesa et al. (2009), Krueger and Fernandez-Villaverde (2011), and Krueger et al. (2016) for interesting applications of these model economies.”
What Would You Do with $500? Spending Responses to Gains, Losses, News, and Loans (2018, methodology): “An alternative approach followed, for example, by Krueger et al. (2016) is to set λη = 1 and to estimate the remaining parameters by transforming corresponding estimates from an annual model.”