Heterogeneous Agent Macroeconomics: An Example and an Agenda Christopher Carroll1 1 Johns

Hopkins University and Consumer Financial Protection Bureau (CFPB) [email protected]

Presentation at IMF Workshop on Computational Macroeconomics

Washington, December 2014

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

1

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Economics The Marginal Propensity to Consume Out of Transitory Shocks (MPCT) Out of Permanent Shocks (MPCP)

The Paradox of Thrift The Paradox of Toil 2

Finance In Representative Agent Models: Who Is the Agent Lending To? Who Is the Agent Borrowing From? Why?

3

Politics of Heterogeneity and Inequality Can Affect Economic Policies! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

1

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Economics The Marginal Propensity to Consume Out of Transitory Shocks (MPCT) Out of Permanent Shocks (MPCP)

The Paradox of Thrift The Paradox of Toil 2

Finance In Representative Agent Models: Who Is the Agent Lending To? Who Is the Agent Borrowing From? Why?

3

Politics of Heterogeneity and Inequality Can Affect Economic Policies! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

1

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Economics The Marginal Propensity to Consume Out of Transitory Shocks (MPCT) Out of Permanent Shocks (MPCP)

The Paradox of Thrift The Paradox of Toil 2

Finance In Representative Agent Models: Who Is the Agent Lending To? Who Is the Agent Borrowing From? Why?

3

Politics of Heterogeneity and Inequality Can Affect Economic Policies! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

1

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Economics The Marginal Propensity to Consume Out of Transitory Shocks (MPCT) Out of Permanent Shocks (MPCP)

The Paradox of Thrift The Paradox of Toil 2

Finance In Representative Agent Models: Who Is the Agent Lending To? Who Is the Agent Borrowing From? Why?

3

Politics of Heterogeneity and Inequality Can Affect Economic Policies! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

1

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Economics The Marginal Propensity to Consume Out of Transitory Shocks (MPCT) Out of Permanent Shocks (MPCP)

The Paradox of Thrift The Paradox of Toil 2

Finance In Representative Agent Models: Who Is the Agent Lending To? Who Is the Agent Borrowing From? Why?

3

Politics of Heterogeneity and Inequality Can Affect Economic Policies! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

1

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Economics The Marginal Propensity to Consume Out of Transitory Shocks (MPCT) Out of Permanent Shocks (MPCP)

The Paradox of Thrift The Paradox of Toil 2

Finance In Representative Agent Models: Who Is the Agent Lending To? Who Is the Agent Borrowing From? Why?

3

Politics of Heterogeneity and Inequality Can Affect Economic Policies! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

1

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Economics The Marginal Propensity to Consume Out of Transitory Shocks (MPCT) Out of Permanent Shocks (MPCP)

The Paradox of Thrift The Paradox of Toil 2

Finance In Representative Agent Models: Who Is the Agent Lending To? Who Is the Agent Borrowing From? Why?

3

Politics of Heterogeneity and Inequality Can Affect Economic Policies! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

1

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Economics The Marginal Propensity to Consume Out of Transitory Shocks (MPCT) Out of Permanent Shocks (MPCP)

The Paradox of Thrift The Paradox of Toil 2

Finance In Representative Agent Models: Who Is the Agent Lending To? Who Is the Agent Borrowing From? Why?

3

Politics of Heterogeneity and Inequality Can Affect Economic Policies! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

1

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Economics The Marginal Propensity to Consume Out of Transitory Shocks (MPCT) Out of Permanent Shocks (MPCP)

The Paradox of Thrift The Paradox of Toil 2

Finance In Representative Agent Models: Who Is the Agent Lending To? Who Is the Agent Borrowing From? Why?

3

Politics of Heterogeneity and Inequality Can Affect Economic Policies! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

1

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Economics The Marginal Propensity to Consume Out of Transitory Shocks (MPCT) Out of Permanent Shocks (MPCP)

The Paradox of Thrift The Paradox of Toil 2

Finance In Representative Agent Models: Who Is the Agent Lending To? Who Is the Agent Borrowing From? Why?

3

Politics of Heterogeneity and Inequality Can Affect Economic Policies! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

1

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Economics The Marginal Propensity to Consume Out of Transitory Shocks (MPCT) Out of Permanent Shocks (MPCP)

The Paradox of Thrift The Paradox of Toil 2

Finance In Representative Agent Models: Who Is the Agent Lending To? Who Is the Agent Borrowing From? Why?

3

Politics of Heterogeneity and Inequality Can Affect Economic Policies! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

1

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Economics The Marginal Propensity to Consume Out of Transitory Shocks (MPCT) Out of Permanent Shocks (MPCP)

The Paradox of Thrift The Paradox of Toil 2

Finance In Representative Agent Models: Who Is the Agent Lending To? Who Is the Agent Borrowing From? Why?

3

Politics of Heterogeneity and Inequality Can Affect Economic Policies! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

1

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Economics The Marginal Propensity to Consume Out of Transitory Shocks (MPCT) Out of Permanent Shocks (MPCP)

The Paradox of Thrift The Paradox of Toil 2

Finance In Representative Agent Models: Who Is the Agent Lending To? Who Is the Agent Borrowing From? Why?

3

Politics of Heterogeneity and Inequality Can Affect Economic Policies! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Our Claim: Heterogeneity Is Key To Modeling the MPCT Overview of Carroll, Slacalek, Tokuoka, and White (2014) The Question: How Large Is the MPCT (≡ κ)? If households receive a surprise extra $1 in income, how much will be in aggregate spent over the next year? Need to Consider: Households are heterogeneous Wealth is unevenly distributed C function is highly concave ⇒ Distributional issues matter for aggregate C Giving $ 1 to the poor 6= giving $ 1 to the rich Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Our Claim: Heterogeneity Is Key To Modeling the MPCT Overview of Carroll, Slacalek, Tokuoka, and White (2014) The Question: How Large Is the MPCT (≡ κ)? If households receive a surprise extra $1 in income, how much will be in aggregate spent over the next year? Need to Consider: Households are heterogeneous Wealth is unevenly distributed C function is highly concave ⇒ Distributional issues matter for aggregate C Giving $ 1 to the poor 6= giving $ 1 to the rich Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Our Claim: Heterogeneity Is Key To Modeling the MPCT Overview of Carroll, Slacalek, Tokuoka, and White (2014) The Question: How Large Is the MPCT (≡ κ)? If households receive a surprise extra $1 in income, how much will be in aggregate spent over the next year? Need to Consider: Households are heterogeneous Wealth is unevenly distributed C function is highly concave ⇒ Distributional issues matter for aggregate C Giving $ 1 to the poor 6= giving $ 1 to the rich Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Our Claim: Heterogeneity Is Key To Modeling the MPCT Overview of Carroll, Slacalek, Tokuoka, and White (2014) The Question: How Large Is the MPCT (≡ κ)? If households receive a surprise extra $1 in income, how much will be in aggregate spent over the next year? Need to Consider: Households are heterogeneous Wealth is unevenly distributed C function is highly concave ⇒ Distributional issues matter for aggregate C Giving $ 1 to the poor 6= giving $ 1 to the rich Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Our Claim: Heterogeneity Is Key To Modeling the MPCT Overview of Carroll, Slacalek, Tokuoka, and White (2014) The Question: How Large Is the MPCT (≡ κ)? If households receive a surprise extra $1 in income, how much will be in aggregate spent over the next year? Need to Consider: Households are heterogeneous Wealth is unevenly distributed C function is highly concave ⇒ Distributional issues matter for aggregate C Giving $ 1 to the poor 6= giving $ 1 to the rich Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Our Claim: Heterogeneity Is Key To Modeling the MPCT Overview of Carroll, Slacalek, Tokuoka, and White (2014) The Question: How Large Is the MPCT (≡ κ)? If households receive a surprise extra $1 in income, how much will be in aggregate spent over the next year? Need to Consider: Households are heterogeneous Wealth is unevenly distributed C function is highly concave ⇒ Distributional issues matter for aggregate C Giving $ 1 to the poor 6= giving $ 1 to the rich Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Consumption Concavity and Wealth Heterogeneity

0.2

1.5 ConsumptionHquarterlyL permanent income ratio Hleft scaleL ¯

1.0

0.15

0.1 Histogram: empirical HSCF1998L density of mt Hpt Wt L Hright scaleL 0.05 ¯

0.5

0.0

0

5

10 Carroll

Hetero Macro

15

20 mt Hpt Wt L

0.

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Why Worry About the MPCT (≡ κ)? Nobody trying to make a forecast in 2008–2010 would ask: Big ‘stimulus’ tax cuts Keynesian multipliers should be big in liquidity trap Crude Keynesianism: Transitory tax cut multiplier is 1/(1 − κ) − 1 If κ = 0.75 then multiplier is 4 − 1 = 3 Some micro estimates of κ are this large

If κ = 0.05 then multiplier is only ≈ 0.05 This is about the size of κ in standard DNK/RBC models κ is much smaller in models with ‘habits’

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Why Worry About the MPCT (≡ κ)? Nobody trying to make a forecast in 2008–2010 would ask: Big ‘stimulus’ tax cuts Keynesian multipliers should be big in liquidity trap Crude Keynesianism: Transitory tax cut multiplier is 1/(1 − κ) − 1 If κ = 0.75 then multiplier is 4 − 1 = 3 Some micro estimates of κ are this large

If κ = 0.05 then multiplier is only ≈ 0.05 This is about the size of κ in standard DNK/RBC models κ is much smaller in models with ‘habits’

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Why Worry About the MPCT (≡ κ)? Nobody trying to make a forecast in 2008–2010 would ask: Big ‘stimulus’ tax cuts Keynesian multipliers should be big in liquidity trap Crude Keynesianism: Transitory tax cut multiplier is 1/(1 − κ) − 1 If κ = 0.75 then multiplier is 4 − 1 = 3 Some micro estimates of κ are this large

If κ = 0.05 then multiplier is only ≈ 0.05 This is about the size of κ in standard DNK/RBC models κ is much smaller in models with ‘habits’

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Why Worry About the MPCT (≡ κ)? Nobody trying to make a forecast in 2008–2010 would ask: Big ‘stimulus’ tax cuts Keynesian multipliers should be big in liquidity trap Crude Keynesianism: Transitory tax cut multiplier is 1/(1 − κ) − 1 If κ = 0.75 then multiplier is 4 − 1 = 3 Some micro estimates of κ are this large

If κ = 0.05 then multiplier is only ≈ 0.05 This is about the size of κ in standard DNK/RBC models κ is much smaller in models with ‘habits’

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Why Worry About the MPCT (≡ κ)? Nobody trying to make a forecast in 2008–2010 would ask: Big ‘stimulus’ tax cuts Keynesian multipliers should be big in liquidity trap Crude Keynesianism: Transitory tax cut multiplier is 1/(1 − κ) − 1 If κ = 0.75 then multiplier is 4 − 1 = 3 Some micro estimates of κ are this large

If κ = 0.05 then multiplier is only ≈ 0.05 This is about the size of κ in standard DNK/RBC models κ is much smaller in models with ‘habits’

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Why Worry About the MPCT (≡ κ)? Nobody trying to make a forecast in 2008–2010 would ask: Big ‘stimulus’ tax cuts Keynesian multipliers should be big in liquidity trap Crude Keynesianism: Transitory tax cut multiplier is 1/(1 − κ) − 1 If κ = 0.75 then multiplier is 4 − 1 = 3 Some micro estimates of κ are this large

If κ = 0.05 then multiplier is only ≈ 0.05 This is about the size of κ in standard DNK/RBC models κ is much smaller in models with ‘habits’

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Why Worry About the MPCT (≡ κ)? Nobody trying to make a forecast in 2008–2010 would ask: Big ‘stimulus’ tax cuts Keynesian multipliers should be big in liquidity trap Crude Keynesianism: Transitory tax cut multiplier is 1/(1 − κ) − 1 If κ = 0.75 then multiplier is 4 − 1 = 3 Some micro estimates of κ are this large

If κ = 0.05 then multiplier is only ≈ 0.05 This is about the size of κ in standard DNK/RBC models κ is much smaller in models with ‘habits’

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Why Worry About the MPCT (≡ κ)? Nobody trying to make a forecast in 2008–2010 would ask: Big ‘stimulus’ tax cuts Keynesian multipliers should be big in liquidity trap Crude Keynesianism: Transitory tax cut multiplier is 1/(1 − κ) − 1 If κ = 0.75 then multiplier is 4 − 1 = 3 Some micro estimates of κ are this large

If κ = 0.05 then multiplier is only ≈ 0.05 This is about the size of κ in standard DNK/RBC models κ is much smaller in models with ‘habits’

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Why Worry About the MPCT (≡ κ)? Nobody trying to make a forecast in 2008–2010 would ask: Big ‘stimulus’ tax cuts Keynesian multipliers should be big in liquidity trap Crude Keynesianism: Transitory tax cut multiplier is 1/(1 − κ) − 1 If κ = 0.75 then multiplier is 4 − 1 = 3 Some micro estimates of κ are this large

If κ = 0.05 then multiplier is only ≈ 0.05 This is about the size of κ in standard DNK/RBC models κ is much smaller in models with ‘habits’

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Why Worry About the MPCT (≡ κ)? Nobody trying to make a forecast in 2008–2010 would ask: Big ‘stimulus’ tax cuts Keynesian multipliers should be big in liquidity trap Crude Keynesianism: Transitory tax cut multiplier is 1/(1 − κ) − 1 If κ = 0.75 then multiplier is 4 − 1 = 3 Some micro estimates of κ are this large

If κ = 0.05 then multiplier is only ≈ 0.05 This is about the size of κ in standard DNK/RBC models κ is much smaller in models with ‘habits’

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

What We Do 1

Calibrate income process to match macro and micro data

2

Calibrate other params to match empirical wealth distribution

3

Compute C and MPCT out of transitory income

Our Claim A model that matches micro facts about income dynamics and wealth distribution gives very different answers and ones that are much more plausible and consistent with micro evidence than RA models to macroeconomic questions (say, about the response of consumption to fiscal ‘stimulus’) Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

What We Do 1

Calibrate income process to match macro and micro data

2

Calibrate other params to match empirical wealth distribution

3

Compute C and MPCT out of transitory income

Our Claim A model that matches micro facts about income dynamics and wealth distribution gives very different answers and ones that are much more plausible and consistent with micro evidence than RA models to macroeconomic questions (say, about the response of consumption to fiscal ‘stimulus’) Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

What We Do 1

Calibrate income process to match macro and micro data

2

Calibrate other params to match empirical wealth distribution

3

Compute C and MPCT out of transitory income

Our Claim A model that matches micro facts about income dynamics and wealth distribution gives very different answers and ones that are much more plausible and consistent with micro evidence than RA models to macroeconomic questions (say, about the response of consumption to fiscal ‘stimulus’) Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

What We Do 1

Calibrate income process to match macro and micro data

2

Calibrate other params to match empirical wealth distribution

3

Compute C and MPCT out of transitory income

Our Claim A model that matches micro facts about income dynamics and wealth distribution gives very different answers and ones that are much more plausible and consistent with micro evidence than RA models to macroeconomic questions (say, about the response of consumption to fiscal ‘stimulus’) Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Model Without Aggr Uncertainty: Decision Problem

v(mt )

=

h i 1−ρ max u(ct ) + β DEt ψt+1 v(mt+1 ) {ct }

s.t. at

=

mt − ct

at



0

kt+1

=

at /(Dψt+1 )

mt+1

=

r

=

(k + r )kt+1 + ξt+1 ¯L)α−1 K /`L αZ (K

Variables normalized by pt W Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Parameter Values

¯ µ , and u taken from from Den Haan, Judd, and β, ρ, α, δ, `, Juillard (2010)

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Estimation of β-Point and β-Dist ‘β-Point’ model ‘Estimate’ single β` by matching the capital–output ratio ‘β-Dist’ model—Heterogenous Impatience Assume uniformly distributed β across households Estimate the band [β` − ∇, β` + ∇] by minimizing distance between model (w ) and data (ω) net worth held by the top 20, 40, 60, 80% X min (wi − ωi )2 , ` {β,∇}

i=20,40,60,80

s.t. aggregate net worth–output ratio matches the steady-state value from the perfect foresight model Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Estimation of β-Point and β-Dist ‘β-Point’ model ‘Estimate’ single β` by matching the capital–output ratio ‘β-Dist’ model—Heterogenous Impatience Assume uniformly distributed β across households Estimate the band [β` − ∇, β` + ∇] by minimizing distance between model (w ) and data (ω) net worth held by the top 20, 40, 60, 80% X min (wi − ωi )2 , ` {β,∇}

i=20,40,60,80

s.t. aggregate net worth–output ratio matches the steady-state value from the perfect foresight model Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Estimation of β-Point and β-Dist ‘β-Point’ model ‘Estimate’ single β` by matching the capital–output ratio ‘β-Dist’ model—Heterogenous Impatience Assume uniformly distributed β across households Estimate the band [β` − ∇, β` + ∇] by minimizing distance between model (w ) and data (ω) net worth held by the top 20, 40, 60, 80% X min (wi − ωi )2 , ` {β,∇}

i=20,40,60,80

s.t. aggregate net worth–output ratio matches the steady-state value from the perfect foresight model Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Estimation of β-Point and β-Dist ‘β-Point’ model ‘Estimate’ single β` by matching the capital–output ratio ‘β-Dist’ model—Heterogenous Impatience Assume uniformly distributed β across households Estimate the band [β` − ∇, β` + ∇] by minimizing distance between model (w ) and data (ω) net worth held by the top 20, 40, 60, 80% X min (wi − ωi )2 , ` {β,∇}

i=20,40,60,80

s.t. aggregate net worth–output ratio matches the steady-state value from the perfect foresight model Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Estimation of β-Point and β-Dist ‘β-Point’ model ‘Estimate’ single β` by matching the capital–output ratio ‘β-Dist’ model—Heterogenous Impatience Assume uniformly distributed β across households Estimate the band [β` − ∇, β` + ∇] by minimizing distance between model (w ) and data (ω) net worth held by the top 20, 40, 60, 80% X min (wi − ωi )2 , ` {β,∇}

i=20,40,60,80

s.t. aggregate net worth–output ratio matches the steady-state value from the perfect foresight model Carroll

Hetero Macro

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Results: Wealth Distribution F 1

0.75

US data HSCFL KS-JEDC Β-Point Β-Dist

0.5

0.25

0 0

25

50 Carroll

75 Hetero Macro

100 Percentile

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Results: Wealth Distribution Micro Income Process Friedman/Buffer Stock Point Discount Factor‡

Top 1% Top 20% Top 40% Top 60% Top 80% ‡

KS-JEDC Our solution

β-Point

Uniformly Distributed Discount Factors? β-Dist

8.6 54.3 76.6 90. 97.5

28.4 83.4 93.8 97.4 99.3

3. 39.5 65.4 83.6 95.1

?

Carroll

KS-Orig Hetero

U.S. Data∗

Hetero Macro

3.0 35.0

24.0 88.0

29.6 79.5 92.9 98.7 100.4

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Marginal Propensity to Consume & Net Worth ct 1.5

f 0.6

Most Impatient Hleft scaleL ¯ Identical Patience Hleft scaleL ¯

1.0

0.4

­ Most Patient Hleft scaleL

0.3 0.2

Representative agent's net worth ® Histogram: empirical density of net worth Hright scaleL ¯

0.5

0.0

0.5

0

5

10 Carroll

15 Hetero Macro

0.1 mt

20

0.

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Results: MPCT (in Annual Terms) Micro Income Process Friedman/Buffer Stock

Overall average By wealth/permanent income ratio Top 1% Top 20% Top 40% Top 60% Bottom 1/2 By employment status Employed Unemployed

β-Point

β-Dist

Our solution

0.1

0.23

0.05

0.06 0.06 0.06 0.07 0.13

0.05 0.06 0.08 0.12 0.35

0.04 0.04 0.04 0.04 0.05

0.09 0.23

0.2 0.54

0.05 0.06

Notes: Annual MPCT is calculated by 1 − (1−quarterly MPCT)4 . Carroll

KS-JEDC

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Estimates of MPCT in the Data: ∼0.2–0.6

Consumption Measure Authors

Nondurables

Durables

Total PCE

Horizon



Blundell et al. (2008b) 0.05 Coronado et al. (2005) Hausman (2012) Johnson et al. (2009) ∼ 0.25 Lusardi (1996)‡ 0.2–0.5 Parker (1999) 0.2 Parker et al. (2011) 0.12–0.30 Sahm et al. (2009) Shapiro and Slemrod (2009) Souleles (1999) 0.045–0.09 Souleles (2002) 0.6–0.9

0.36 0.6–0.75

0.29–0.54

0.50–0.90 ∼ 1/3 ∼ 1/3 0.34–0.64

Notes: ‡ : elasticity. Carroll

Hetero Macro

1 Year 1 Year 3 Months 3 3 1 1 3 1

Months Months Year Year Months Year

Event/Sample Estimation Sample: 1980–92 2003 Tax Cut 1936 Veterans’ Bonus 2003 Child Tax Credit Estimation Sample: 1980–87 Estimation Sample: 1980–93 2008 Economic Stimulus 2008 Economic Stimulus 2008 Economic Stimulus Estimation Sample: 1980–91 The Reagan Tax Cuts of the Early 1980s

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Results: MPCT Over the Business Cycle Model: β-Dist

Krusell–Smith (KS)

Friedman/Buffer St

Scenario Base

Recssn

Base

Large Bad Perm Shock

0.21

0.20

0.20

0.05 0.06 0.06 0.08 0.09 0.11

0.05 0.06 0.06 0.06 0.06 0.09

0.05 0.06 0.06 0.06 0.06 0.09

Expnsn

Overall average 0.23 0.25 By wealth/permanent income ratio Top 1% 0.05 0.05 Top 10% 0.06 0.06 Top 20% 0.06 0.06 Top 40% 0.08 0.08 Top 50% 0.09 0.10 Top 60% 0.12 0.12Macro Carroll Hetero

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Overlapping Generations Realistic Life-Cycle Model Three education levels: e ∈ {D, HS, C } Age/education-specific income profiles yt pt

= ξt p t = (1 − τ )θt p t , = ψt ψ es p t−1

Age-specific variances of income shocks Transitory unemployment shock with prob u

Household-specific mortality Des Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Overlapping Generations Realistic Life-Cycle Model Three education levels: e ∈ {D, HS, C } Age/education-specific income profiles yt pt

= ξt p t = (1 − τ )θt p t , = ψt ψ es p t−1

Age-specific variances of income shocks Transitory unemployment shock with prob u

Household-specific mortality Des Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Overlapping Generations Realistic Life-Cycle Model Three education levels: e ∈ {D, HS, C } Age/education-specific income profiles yt pt

= ξt p t = (1 − τ )θt p t , = ψt ψ es p t−1

Age-specific variances of income shocks Transitory unemployment shock with prob u

Household-specific mortality Des Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Overlapping Generations Realistic Life-Cycle Model Three education levels: e ∈ {D, HS, C } Age/education-specific income profiles yt pt

= ξt p t = (1 − τ )θt p t , = ψt ψ es p t−1

Age-specific variances of income shocks Transitory unemployment shock with prob u

Household-specific mortality Des Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Overlapping Generations Realistic Life-Cycle Model Three education levels: e ∈ {D, HS, C } Age/education-specific income profiles yt pt

= ξt p t = (1 − τ )θt p t , = ψt ψ es p t−1

Age-specific variances of income shocks Transitory unemployment shock with prob u

Household-specific mortality Des Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Household Decision Problem

ves (mt )

=

h i 1−ρ max u(ct ) + β Des Et ψt+1 ves+1 (mt+1 ) ct

s.t. at

=

mt − ct ,

kt+1

=

at /ψt+1 ,

mt+1

=

(k + r )kt+1 + ξt+1 ,

at



0

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Macro Dynamics

Population growth N, technological progress Γ Tax rate to finance social security and unemployment benefits: τ = τSS + τU h i P P384 Qt e∈{D,HS,C }

τSS =

P

e∈{D,HS,C }

θe p e0

h

t=164

θe p e0

P163

t=0

((1+Γ)(1+N))−t

((1+Γ)(1+N))−t

τU = uµ

Carroll

Hetero Macro

s=0 (ψ es Des )



Qt

i

Des ) s=0 (ψ es

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Macro Dynamics

Population growth N, technological progress Γ Tax rate to finance social security and unemployment benefits: τ = τSS + τU h i P P384 Qt e∈{D,HS,C }

τSS =

P

e∈{D,HS,C }

θe p e0

h

t=164

θe p e0

P163

t=0

((1+Γ)(1+N))−t

((1+Γ)(1+N))−t

τU = uµ

Carroll

Hetero Macro

s=0 (ψ es Des )



Qt

i

Des ) s=0 (ψ es

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Macro Dynamics

Population growth N, technological progress Γ Tax rate to finance social security and unemployment benefits: τ = τSS + τU h i P P384 Qt e∈{D,HS,C }

τSS =

P

e∈{D,HS,C }

θe p e0

h

t=164

θe p e0

P163

t=0

((1+Γ)(1+N))−t

((1+Γ)(1+N))−t

τU = uµ

Carroll

Hetero Macro

s=0 (ψ es Des )



Qt

i

Des ) s=0 (ψ es

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Macro Dynamics

Population growth N, technological progress Γ Tax rate to finance social security and unemployment benefits: τ = τSS + τU h i P P384 Qt e∈{D,HS,C }

τSS =

P

e∈{D,HS,C }

θe p e0

h

t=164

θe p e0

P163

t=0

((1+Γ)(1+N))−t

((1+Γ)(1+N))−t

τU = uµ

Carroll

Hetero Macro

s=0 (ψ es Des )



Qt

i

Des ) s=0 (ψ es

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Calibration Description Coefficient of relative risk aversion Effective interest rate Population growth rate Technological growth rate Rate of high school dropouts Rate of high school graduates Rate of college graduates Average initial permanent income, dropout Average initial permanent income, high school Average initial permanent income, college Unemployment insurance payment Unemployment rate Labor income tax rate Carroll

Hetero Macro

Parameter

Value

ρ (r − δ) N Γ θD θHS θC p D0 p HS0 pC0 µ u τ

1 0.01 0.0025 0.0037 0.11 0.55 0.34 5000 7500 12000 0.15 0.07 0.0942

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Results: Wealth Distribution F 1

0.75

US data HSCFL KS-JEDC Β-Point Β-Dist

0.5

0.25

0 0

25

50 Carroll

75 Hetero Macro

100 Percentile

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Results: MPCT (in Annual Terms) Micro Income Process

Wealth Measure

KS-JEDC Our solution NW

Overall average By wealth/permanent Top 1% Top 20% Top 40% Top 60% Bottom 1/2

FBS β-Dist NW

0.05 0.23 income ratio 0.04 0.05 0.04 0.06 0.04 0.08 0.04 0.12 0.05Carroll 0.35Macro Hetero

Life-Cycle Model β-Point NW

β-Dist NW

β-Dist Liquid

0.11

0.29

0.42

0.08 0.09 0.08 0.08 0.13

0.07 0.07 0.07 0.10 0.49

0.07 0.07 0.11 0.20 0.70

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Results: MPCT by Age MPC 1

0.75 Most impatient 0.5 Population average 0.25 Most patient 0

30

40

50

60

70

80

90

Age 100

Initial drop in MPCT: Build-up of buffer stock Rise while rapid income growth, fall before retirement, then incrsing mortlty risk Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Results: MPCT by Age MPC 1

0.75 Most impatient 0.5 Population average 0.25 Most patient 0

30

40

50

60

70

80

90

Age 100

Initial drop in MPCT: Build-up of buffer stock Rise while rapid income growth, fall before retirement, then incrsing mortlty risk Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Conclusions

Definition of “serious” microfoundations: Model that matches Income Dynamics Wealth Distribution

The model produces more plausible implications about: Aggregate MPCT Distribution of MPCT Across Households

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Conclusions

Definition of “serious” microfoundations: Model that matches Income Dynamics Wealth Distribution

The model produces more plausible implications about: Aggregate MPCT Distribution of MPCT Across Households

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Conclusions

Definition of “serious” microfoundations: Model that matches Income Dynamics Wealth Distribution

The model produces more plausible implications about: Aggregate MPCT Distribution of MPCT Across Households

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Conclusions

Definition of “serious” microfoundations: Model that matches Income Dynamics Wealth Distribution

The model produces more plausible implications about: Aggregate MPCT Distribution of MPCT Across Households

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Conclusions

Definition of “serious” microfoundations: Model that matches Income Dynamics Wealth Distribution

The model produces more plausible implications about: Aggregate MPCT Distribution of MPCT Across Households

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Overview The MPCT Theory and Evidence Decision Problem Parameter Values Our Strategy Results: Marginal Propensity to Consume Life Cycle Model

Conclusions

Definition of “serious” microfoundations: Model that matches Income Dynamics Wealth Distribution

The model produces more plausible implications about: Aggregate MPCT Distribution of MPCT Across Households

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Bottom Up: How It Is Done Now

Example: 1

Solve Micro DSOP Problem Assuming Some Beliefs (Hard)

2

Simulate Pop Behavior Under Those Beliefs (Hard)

3

Compare Beliefs to Realizations (Easy)

4

Modify Beliefs (Moderate)

5

Repeat Until Beliefs Match Expectations

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Bottom Up: How It Is Done Now

Example: 1

Solve Micro DSOP Problem Assuming Some Beliefs (Hard)

2

Simulate Pop Behavior Under Those Beliefs (Hard)

3

Compare Beliefs to Realizations (Easy)

4

Modify Beliefs (Moderate)

5

Repeat Until Beliefs Match Expectations

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Bottom Up: How It Is Done Now

Example: 1

Solve Micro DSOP Problem Assuming Some Beliefs (Hard)

2

Simulate Pop Behavior Under Those Beliefs (Hard)

3

Compare Beliefs to Realizations (Easy)

4

Modify Beliefs (Moderate)

5

Repeat Until Beliefs Match Expectations

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Bottom Up: How It Is Done Now

Example: 1

Solve Micro DSOP Problem Assuming Some Beliefs (Hard)

2

Simulate Pop Behavior Under Those Beliefs (Hard)

3

Compare Beliefs to Realizations (Easy)

4

Modify Beliefs (Moderate)

5

Repeat Until Beliefs Match Expectations

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Bottom Up: How It Is Done Now

Example: 1

Solve Micro DSOP Problem Assuming Some Beliefs (Hard)

2

Simulate Pop Behavior Under Those Beliefs (Hard)

3

Compare Beliefs to Realizations (Easy)

4

Modify Beliefs (Moderate)

5

Repeat Until Beliefs Match Expectations

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Pin Factory

1

Smith (1776): 1 2

One Person Should Not Do Every Step! Now: Each model is a handcrafted artisan creation

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Pin Factory

1

Smith (1776): 1 2

One Person Should Not Do Every Step! Now: Each model is a handcrafted artisan creation

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Pin Factory

1

Smith (1776): 1 2

One Person Should Not Do Every Step! Now: Each model is a handcrafted artisan creation

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Problems

1

Tower of Babel: Everyone Speaks A Different Language Reinvention of the Wheel: Time Wasted Failure to Reinvent the Wheel: Even More Time Wasted

2

Science is Reproducible Is Computational Economics? Not As Practiced Now

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Problems

1

Tower of Babel: Everyone Speaks A Different Language Reinvention of the Wheel: Time Wasted Failure to Reinvent the Wheel: Even More Time Wasted

2

Science is Reproducible Is Computational Economics? Not As Practiced Now

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Problems

1

Tower of Babel: Everyone Speaks A Different Language Reinvention of the Wheel: Time Wasted Failure to Reinvent the Wheel: Even More Time Wasted

2

Science is Reproducible Is Computational Economics? Not As Practiced Now

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Problems

1

Tower of Babel: Everyone Speaks A Different Language Reinvention of the Wheel: Time Wasted Failure to Reinvent the Wheel: Even More Time Wasted

2

Science is Reproducible Is Computational Economics? Not As Practiced Now

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Problems

1

Tower of Babel: Everyone Speaks A Different Language Reinvention of the Wheel: Time Wasted Failure to Reinvent the Wheel: Even More Time Wasted

2

Science is Reproducible Is Computational Economics? Not As Practiced Now

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Problems

1

Tower of Babel: Everyone Speaks A Different Language Reinvention of the Wheel: Time Wasted Failure to Reinvent the Wheel: Even More Time Wasted

2

Science is Reproducible Is Computational Economics? Not As Practiced Now

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Solutions Open Source Code Project a la LaTeX 1

Centralized, Consistent Resource

2

Containing All the Key Pieces

3

Modularized and Reusable and Extensible

4

With Good Testing Tools

5

And Library of Examples

6

Which Encourages New Contributions

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Solutions Open Source Code Project a la LaTeX 1

Centralized, Consistent Resource

2

Containing All the Key Pieces

3

Modularized and Reusable and Extensible

4

With Good Testing Tools

5

And Library of Examples

6

Which Encourages New Contributions

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Solutions Open Source Code Project a la LaTeX 1

Centralized, Consistent Resource

2

Containing All the Key Pieces

3

Modularized and Reusable and Extensible

4

With Good Testing Tools

5

And Library of Examples

6

Which Encourages New Contributions

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Solutions Open Source Code Project a la LaTeX 1

Centralized, Consistent Resource

2

Containing All the Key Pieces

3

Modularized and Reusable and Extensible

4

With Good Testing Tools

5

And Library of Examples

6

Which Encourages New Contributions

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Solutions Open Source Code Project a la LaTeX 1

Centralized, Consistent Resource

2

Containing All the Key Pieces

3

Modularized and Reusable and Extensible

4

With Good Testing Tools

5

And Library of Examples

6

Which Encourages New Contributions

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Solutions Open Source Code Project a la LaTeX 1

Centralized, Consistent Resource

2

Containing All the Key Pieces

3

Modularized and Reusable and Extensible

4

With Good Testing Tools

5

And Library of Examples

6

Which Encourages New Contributions

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Starting Points

1

The MPC Model Described Above (Carroll, Slacalek, Tokuoka, and White (2014))

2

A Canonical Life Cycle Model (Carroll (2014))

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Starting Points

1

The MPC Model Described Above (Carroll, Slacalek, Tokuoka, and White (2014))

2

A Canonical Life Cycle Model (Carroll (2014))

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Top Down

1

Define A Unified Modeling Language (‘Dynare++’ ?)

2

Start With A Limited Set Of Options

3

Allow User Choice of Algorithm

4

Incorporate ‘Bottom Up’ Pieces As Needed

Vision: ‘Stata for Heterogeneous Agents Modeling’

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Top Down

1

Define A Unified Modeling Language (‘Dynare++’ ?)

2

Start With A Limited Set Of Options

3

Allow User Choice of Algorithm

4

Incorporate ‘Bottom Up’ Pieces As Needed

Vision: ‘Stata for Heterogeneous Agents Modeling’

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Top Down

1

Define A Unified Modeling Language (‘Dynare++’ ?)

2

Start With A Limited Set Of Options

3

Allow User Choice of Algorithm

4

Incorporate ‘Bottom Up’ Pieces As Needed

Vision: ‘Stata for Heterogeneous Agents Modeling’

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Top Down

1

Define A Unified Modeling Language (‘Dynare++’ ?)

2

Start With A Limited Set Of Options

3

Allow User Choice of Algorithm

4

Incorporate ‘Bottom Up’ Pieces As Needed

Vision: ‘Stata for Heterogeneous Agents Modeling’

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Social Engineering

“If We Build It They Will Come”? No. Think Carefully About What Has Worked and Why: LaTeX StackExchange LibreOffice

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Social Engineering

“If We Build It They Will Come”? No. Think Carefully About What Has Worked and Why: LaTeX StackExchange LibreOffice

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Social Engineering

“If We Build It They Will Come”? No. Think Carefully About What Has Worked and Why: LaTeX StackExchange LibreOffice

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Social Engineering

“If We Build It They Will Come”? No. Think Carefully About What Has Worked and Why: LaTeX StackExchange LibreOffice

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Social Engineering

“If We Build It They Will Come”? No. Think Carefully About What Has Worked and Why: LaTeX StackExchange LibreOffice

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Social Engineering

“If We Build It They Will Come”? No. Think Carefully About What Has Worked and Why: LaTeX StackExchange LibreOffice

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Figure Out Ways to Incentivize Contributions

Bottom Up Grad Students Junior Faculty Journals Persuade IMF/Fed/CFPB/ECB/BLS To “Count” Contributions

Top Down Persuade IMF/Fed/CFPB/ECB/BLS To Fund Development!

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Figure Out Ways to Incentivize Contributions

Bottom Up Grad Students Junior Faculty Journals Persuade IMF/Fed/CFPB/ECB/BLS To “Count” Contributions

Top Down Persuade IMF/Fed/CFPB/ECB/BLS To Fund Development!

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Figure Out Ways to Incentivize Contributions

Bottom Up Grad Students Junior Faculty Journals Persuade IMF/Fed/CFPB/ECB/BLS To “Count” Contributions

Top Down Persuade IMF/Fed/CFPB/ECB/BLS To Fund Development!

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Figure Out Ways to Incentivize Contributions

Bottom Up Grad Students Junior Faculty Journals Persuade IMF/Fed/CFPB/ECB/BLS To “Count” Contributions

Top Down Persuade IMF/Fed/CFPB/ECB/BLS To Fund Development!

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Figure Out Ways to Incentivize Contributions

Bottom Up Grad Students Junior Faculty Journals Persuade IMF/Fed/CFPB/ECB/BLS To “Count” Contributions

Top Down Persuade IMF/Fed/CFPB/ECB/BLS To Fund Development!

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Figure Out Ways to Incentivize Contributions

Bottom Up Grad Students Junior Faculty Journals Persuade IMF/Fed/CFPB/ECB/BLS To “Count” Contributions

Top Down Persuade IMF/Fed/CFPB/ECB/BLS To Fund Development!

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

Three Elements

Figure Out Ways to Incentivize Contributions

Bottom Up Grad Students Junior Faculty Journals Persuade IMF/Fed/CFPB/ECB/BLS To “Count” Contributions

Top Down Persuade IMF/Fed/CFPB/ECB/BLS To Fund Development!

Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

The Time Is Ripe Great Recession has Convinced Macroeconomists Heterogeneity Matters Tower of Babel Problem is Widely Perceived Economics is Way Behind Other Fields But ‘catch up’ growth is the fastest kind!

Margaret Mead: ‘Never doubt that a small group of thoughtful, committed people can change the world; indeed, it’s the only thing that ever has.’ Here We Are! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

The Time Is Ripe Great Recession has Convinced Macroeconomists Heterogeneity Matters Tower of Babel Problem is Widely Perceived Economics is Way Behind Other Fields But ‘catch up’ growth is the fastest kind!

Margaret Mead: ‘Never doubt that a small group of thoughtful, committed people can change the world; indeed, it’s the only thing that ever has.’ Here We Are! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

The Time Is Ripe Great Recession has Convinced Macroeconomists Heterogeneity Matters Tower of Babel Problem is Widely Perceived Economics is Way Behind Other Fields But ‘catch up’ growth is the fastest kind!

Margaret Mead: ‘Never doubt that a small group of thoughtful, committed people can change the world; indeed, it’s the only thing that ever has.’ Here We Are! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

The Time Is Ripe Great Recession has Convinced Macroeconomists Heterogeneity Matters Tower of Babel Problem is Widely Perceived Economics is Way Behind Other Fields But ‘catch up’ growth is the fastest kind!

Margaret Mead: ‘Never doubt that a small group of thoughtful, committed people can change the world; indeed, it’s the only thing that ever has.’ Here We Are! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

The Time Is Ripe Great Recession has Convinced Macroeconomists Heterogeneity Matters Tower of Babel Problem is Widely Perceived Economics is Way Behind Other Fields But ‘catch up’ growth is the fastest kind!

Margaret Mead: ‘Never doubt that a small group of thoughtful, committed people can change the world; indeed, it’s the only thing that ever has.’ Here We Are! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

The Time Is Ripe Great Recession has Convinced Macroeconomists Heterogeneity Matters Tower of Babel Problem is Widely Perceived Economics is Way Behind Other Fields But ‘catch up’ growth is the fastest kind!

Margaret Mead: ‘Never doubt that a small group of thoughtful, committed people can change the world; indeed, it’s the only thing that ever has.’ Here We Are! Carroll

Hetero Macro

Why Should Macroeconomists Care About Heterogeneity? An Agenda Conclusion References

References I

Carroll, Christopher D. (2014): “Solving Microeconomic Dynamic Stochastic Optimization Problems,” Archive, Johns Hopkins University, http://econ.jhu.edu/people/ccarroll/SolvingMicroDSOPs/. Carroll, Christopher D., Jiri Slacalek, Kiichi Tokuoka, and Matthew N. White (2014): “The Distribution of Wealth and the Marginal Propensity to Consume,” mimeo, Johns Hopkins University, At http://econ.jhu.edu/people/ccarroll/papers/cstwMPC (this is a revision of cstMPC). Den Haan, Wouter J., Kenneth L. Judd, and Michel Juillard (2010): “Computational Suite of Models with Heterogeneous Agents: Incomplete Markets and Aggregate Uncertainty,” Journal of Economic Dynamics and Control, 34(1), 1–3. Smith, Adam (1776): “An Inquiry into the Nature and Causes of the Wealth of Nations,” in The Wealth of Nations: The Cannan Edition, ed. by E. Cannan. Modern Library, New York, (1937).

Carroll

Hetero Macro

Heterogeneous Agent Macroeconomics: An Example and an ... - GitHub

Keynesian multipliers should be big in liquidity trap. Crude Keynesianism: .... Calibrate income process to match macro and micro data. 2. Calibrate other ...

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