Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/215087 
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8085
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
How much does inequality matter for the business cycle and vice versa? Using a Bayesian likelihood approach, we estimate a heterogeneous-agent New-Keynesian (HANK) model with incomplete markets and portfolio choice between liquid and illiquid assets. The model enlarges the set of shocks and frictions in Smets and Wouters (2007) by allowing for shocks to income risk and taxes. We find that adding data on inequality does not materially change the estimated shocks and frictions driving the US business cycle. The estimated shocks, however, have significantly contributed to the evolution of US wealth and income inequality. The systematic components of monetary and fiscal policy are important for inequality as well.
Subjects: 
Bayesian estimation
business cycles
income inequality
incomplete markets
monetary and fiscal policy
wealth inequality
JEL: 
C11
D31
E32
E63
Document Type: 
Working Paper
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