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Labor-Market Heterogeneity, Aggregation, and the Lucas Critique / Yongsung Chang, Sun-Bin Kim, Frank Schorfheide.
- Format:
- Book
- Author/Creator:
- Chang, Yongsung.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w16401.
- NBER working paper series no. w16401
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2010.
- Summary:
- This paper assesses biases in policy predictions due to the lack of invariance of "structural'' parameters in representative-agent models. We simulate data under various fiscal policy regimes from a heterogeneous-agents economy with incomplete asset markets and indivisible labor supply. Imperfect aggregation manifests itself through preference shocks in the estimated representative-agent model. Preference and technology parameter estimates are not invariant with respect to policy changes. As a result, the bias in the representative-agent model's policy predictions is large compared to the length of predictive intervals that reflect parameter uncertainty.
- Notes:
- Print version record
- September 2010.
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