LABOR‐MARKET HETEROGENEITY, AGGREGATION, AND POLICY (IN)VARIANCE OF DSGE MODEL PARAMETERS. (3rd January 2013)

• Record Type: Journal Article
• Authors: Chang, Yongsung; Kim, Sun‐Bin; Schorfheide, Frank
• Is Part Of: Journal of the European Economic Association. Volume 11(2013)Supplement 1
• Page Start: 193
• Page End: 220
• Publication Date: 2013-01-03
• Subjects: C11 -- C32 -- E32 -- E62; Economics -- Periodicals; Économie politique -- Périodiques; Science économique; Périodique électronique (Descripteur de forme); Ressource Internet (Descripteur de forme); 330
• DOI: 10.1111/j.1542-4774.2012.01098.x
• Languages: English
• ISSNs: 1542-4766

Abstract

Abstract: Data from a heterogeneous‐agents economy with incomplete asset markets and indivisible labor supply are simulated under various fiscal policy regimes and an approximating representative‐agent model is estimated. Preference and technology parameter estimates of the representative‐agent model are not invariant to policy changes and the bias in the representative‐agent model's policy predictions is large compared to predictive intervals that reflect parameter uncertainty. Since it is not always feasible to account for heterogeneity explicitly, it is important to recognize the possibility that the parameters of a highly aggregated model may not be invariant with respect to policy changes.