Idiosyncratic Income Risk and Aggregate Fluctuations

Davide Debortoli and Galí, Jordi

No 16952, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the role of idiosyncratic income shocks for aggregate fluctuations within a simple heterogeneous household framework with no binding borrowing constraints. We show that the presence of idiosyncratic income shocks affects the economy's response to an aggregate shock in a way that can be captured by a consumption-weighted average of the changes in uncertainty generated by the shock. We apply this framework to two example economies ---an endowment economy and a New Keynesian economy--- and show that under plausible calibrations the impact of idiosyncratic income shocks on aggregate fluctuations is quantitatively small, since most of the changes in uncertainty are concentrated among poorer (low consumption) households.

Keywords: Heterogeneous agents; Economic fluctuations; Idiosyncratic shocks; Monetary policy; Hank models (search for similar items in EconPapers)
JEL-codes: E21 E32 E50 (search for similar items in EconPapers)
Date: 2022-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP16952 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Idiosyncratic Income Risk and Aggregate Fluctuations (2024)
Working Paper: Idiosyncratic income risk and aggregate fluctuations (2023)
Working Paper: Idiosyncratic Income Risk and Aggregate Fluctuations (2022)
Working Paper: Idiosyncratic Income Risk and Aggregate Fluctuations (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:16952

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP16952

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().