Imperfect Risk-Sharing and the Business Cycle / David W. Berger, Luigi Bocola, Alessandro Dovis.

Format:

Book

Author/Creator:

Berger, David W.

Contributor:

National Bureau of Economic Research.

Bocola, Luigi.

Dovis, Alessandro.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26032.

NBER working paper series no. w26032

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

This paper studies the macroeconomic implications of imperfect risk sharing implied by a class of New Keynesian models with heterogeneous agents. The models in this class can be equivalently represented as a representative-agent economy with wedges. These wedges are functions of households' consumption shares and relative wages, and they identify the key cross-sectional moments that govern the impact of households' heterogeneity on aggregate variables. We measure the wedges using U.S. household-level data, and combine them with a representative-agent economy to perform counterfactuals. We find that deviations from perfect risk sharing implied by this class of models account for only 7% of output volatility on average, but can have sizable output effects when nominal interest rates reach their lower bound.

Notes:

Print version record

July 2019.