Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/101355
Authors: 
Carroll, Christopher D.
Year of Publication: 
2012
Series/Report no.: 
Working Papers, The Johns Hopkins University, Department of Economics 597
Abstract: 
Today's dominant strain of macroeconomic models supposes that aggregate consumption can be understood by assuming the existence of a 'representative agent' whose behavior rationalizes observed outcomes. But representative agent models yield embarrassingly implausible (and empirically inaccurate) descriptions of consumption behavior. When push comes to shove, real-world forecasters (including those at the Fed) properly disregard these implications. As a result, consumption forecasting remains very much a seat-of-the-pants enterprise. I will argue that if the representative agent assumption is replaced with a model that generates wealth heterogeneity that matches the empirical data, the improved model can provide a sensible analysis of economic questions like "What might the consumption response be to economic stimulus payments?"
Subjects: 
Microfoundations
Wealth Inequality
Marginal Propensity to Consume
JEL: 
D12
D31
D91
E21
Document Type: 
Working Paper

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