Tuesday, March 9, 2010

Facts for heterogeneous agent macroeconomics

I rarely discuss material published in journals because I usually have seen it before in a working paper form. But sometimes you come across a great article, and in this case a special issue of the Review of Economic Dynamics. Nowadays, macroeconomics, at least the fresh water variety, is all about agent heterogeneity, and thus it is important to understand well the data these models are supposed to replicate. The special issue does this for nine countries, in an effort that tries to use uniform definitions and treatment of the data. In addition, data and programs are made available.

There is too much to write about for the whole special issue, so I will concentrate on the introduction by Dirk Krueger, Fabrizio Perri, Luigi Pistaferri and Giovanni Violante. They highlight that:

  1. Wage disparity is lower where the labor market faces more institutional constraints.
  2. The college premium is high everywhere.
  3. Income inequality has increased.
  4. Earnings inequality is larger than wage inequality.
  5. Asset income and private transfers have no impact on inequality.
  6. Government transfers affect inequality at the bottom, taxes at the top of the distribution.
  7. Inequality in disposable income is larger than inequality in consumption.
  8. Long-run changes in the inequality of discposable income are also larger than for consumption.
  9. In recessions, inequality of earnings is more pronounced at the bottom of the distribution.
  10. The same holds true for consumption.
  11. Recessions have no impact on wealth inequality (we have to wait and see for the last one, though).
  12. Inequality over the life cycle varies considerably across countries.

I found of particular interest the effort to reconcile micro-level consumption data with the national accounts. It is well known that there are discrepancies in the US and the UK for the growth of consumption, but apparently not elsewhere.

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