Topic
Representative agent
About: Representative agent is a research topic. Over the lifetime, 1027 publications have been published within this topic receiving 35434 citations.
Papers published on a yearly basis
Papers
TL;DR: In this article, the authors examine the stochastic behavior of equilibrium asset prices in a one-good, pure exchange economy with identical consumers, and derive a functional equation for price as a function of the physical state of the economy.
Abstract: THIS PAPER IS A THEORETICAL examination of the stochastic behavior of equilibrium asset prices in a one-good, pure exchange economy with identical consumers. The single good in this economy is (costlessly) produced in a number of different productive units; an asset is a claim to all or part of the output of one of these units. Productivity in each unit fluctuates stochastically through time, so that equilibrium asset prices will fluctuate as well. Our objective will be to understand the relationship between these exogenously determined productivity changes and market determined movements in asset prices. Most of our attention will be focused on the derivation and application of a functional equation in the vector of equilibrium asset prices, which is solved for price as a function of the physical state of the economy. This equation is a generalization of the Martingale property of stochastic price sequences, which serves in practice as the defining characteristic of market "efficiency," as that term is used by Fama [7] and others. The model thus serves as a simple context for examining the conditions under which a price series' failure to possess the Martingale property can be viewed as evidence of non-competitive or "irrational" behavior. The analysis is conducted under the assumption that, in Fama's terms, prices "fully reflect all available information," an hypothesis which Muth [13] had earlier termed "rationality of expectations." As Muth made clear, this hypothesis (like utility maximization) is not "behavioral": it does not describe the way agents think about their environment, how they learn, process information, and so forth. It is rather a property likely to be (approximately) possessed by the outcome of this unspecified process of learning and adapting. One would feel more comfortable, then, with rational expectations equilibria if these equilibria were accompanied by some form of "stability theory" which illuminated the forces which move an economy toward equilibrium. The present paper also offers a convenient context for discussing this issue. The conclusions of this paper with respect to the Martingale property precisely replicate those reached earlier by LeRoy (in [10] and [11]), and not surprisingly, since the economic reasoning in [10] and the present paper is the same. The
5,695 citations
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TL;DR: In this article, the authors consider the problem of saving when consumers are not permitted to borrow, and the ability of such a theory to account for some of the stylized facts of saving behavior.
Abstract: This paper is concerned with the theory of saving when consumers are not permitted to borrow, and with the ability of such a theory to account for some of the stylized facts of saving behavior. When consumers are relatively impatient, and when labor income is independently and identically distributed over time, assets act like a buffer stock, protecting consumption against bad draws of income. The precautionary demand for saving interacts with the borrowing constraints to provide a motive for holding assets. If the income process is positively autocorrelated, but stationary, assets are still used to buffer consumption, but do so less effectively, and at a greater cost in terms of foregone consumption. In the limit, when labor income is a random walk, it is optimal for impatient liquidity constrained consumers simply to consume their incomes. As a consequence, a liquidity constrained representative agent cannot generate aggregate U.S. saving behavior if that agent receives aggregate labor income. Either there is no saving, when income is a random walk, or saving is contracyclical over the business cycle, when income changes are positively autocorrelated. However, in reality, microeconomic income processes do not resemble their average, and it is possible to construct a model of microeconomic saving under liquidity constraints which, at the aggregate level, reproduces many of the stylized facts in the actual data. While it is clear that many households are not liquidity constrained, and do not behave as described here, the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life-cycle models.
2,155 citations
TL;DR: In this paper, the authors studied the time-series behavior of asset returns and aggregate consumption in a representative consumer model and imposing restrictions on preferences and the joint distribution of consumption and returns.
Abstract: This paper studies the time-series behavior of asset returns and aggregate consumption. Using a representative consumer model and imposing restrictions on preferences and the joint distribution of consumption and returns, we deduce a restricted log-linear time-series representation. Preference parameters for the representative agent are estimated and the implied restrictions are tested using postwar data.
1,880 citations
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TL;DR: In this paper, the authors consider the problem of saving when consumers are not permitted to borrow, and the ability of such a theory to account for some of the stylized facts of saving behavior.
Abstract: This paper is concerned with the theory of saving when consumers are not permitted to borrow, and with the ability of such a theory to account for some of the stylized facts of saving behavior. When consumers are relatively impatient, and when labor income is independently and identically distributed over time, assets act like a buffer stock, protecting consumption against bad draws of income. The precautionary demand for saving interacts with the borrowing constraints to provide a motive for holding assets. If the income process is positively autocorrelated, but stationary, assets are still used to buffer consumption, but do so less effectively, and at a greater cost in terms of foregone consumption. In the limit, when labor income is a random walk, it is optimal for impatient liquidity constrained consumers simply to consume their incomes. As a consequence, a liquidity constrained representative agent cannot generate aggregate U.S. saving behavior if that agent receives aggregate labor income. Either there is no saving, when income is a random walk, or saving is contracyclical over the business cycle, when income changes are positively autocorrelated. However, in reality, microeconomic income processes do not resemble their average, and it is possible to construct a model of microeconomic saving under liquidity constraints which, at the aggregate level, reproduces many of the stylized facts in the actual data. While it is clear that many households are not liquidity constrained, and do not behave as described here, the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life-cycle models.
1,730 citations
TL;DR: In this article, the authors revisited the transmission mechanism from monetary policy to household consumption in a Heterogeneous Agent New Keynesian (HANK) model and found that the indirect effects of an unexpected cut in interest rates, which operate through a general equilibrium increase in labor demand, far outweigh direct effects such as intertemporal substitution.
Abstract: We revisit the transmission mechanism from monetary policy to household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of wealth and marginal propensities to consume because of two features: uninsurable income shocks and multiple assets with different degrees of liquidity and different returns. In this environment, the indirect effects of an unexpected cut in interest rates, which operate through a general equilibrium increase in labor demand, far outweigh direct effects such as intertemporal substitution. This finding is in stark contrast to small- and medium-scale Representative Agent New Keynesian (RANK) economies, where the substitution channel drives virtually all of the transmission from interest rates to consumption. Failure of Ricardian equivalence implies that, in HANK models, the fiscal reaction to the monetary expansion is a key determinant of the overall size of the macroeconomic response.
1,274 citations
Related Topics (5)
Performance Metrics
| Year | Papers |
|---|---|
| 2021 | 24 |
| 2020 | 30 |
| 2019 | 34 |
| 2018 | 37 |
| 2017 | 29 |
| 2016 | 43 |