Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154066
Authors: 
Carroll, Christopher D.
Slacalek, Jiri
Tokuoka, Kiichi
Year of Publication: 
2014
Series/Report no.: 
ECB Working Paper 1633
Abstract: 
A large body of microeconomic evidence supports Friedman (1957)'s proposition that household income can be reasonably well described as having both transitory and permanent components. We show how to modify the widely-used macroeconomic model of Krusell and Smith (1998) to accommodate such a microeconomic income process. Our incorporation of substantial permanent income shocks helps our model to explain a substantial part of the large degree of empirical wealth heterogeneity that is unexplained in the baseline Krusell and Smith (1998) model, even without heterogeneity in preferences.
Subjects: 
aggregate uncertainty
household income process
wealth inequality
JEL: 
D12
D31
D91
E21
Document Type: 
Working Paper

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