A Note on Sunspots with Heterogeneous Agents
23 Pages Posted: 24 Apr 2010 Last revised: 28 Aug 2010
Date Written: July 15, 2009
This paper studies sunspot fluctuations in a model with heterogeneous households. We find that wealth inequality reduces the degree of increasing returns needed to produce indeterminacy, while wage inequality increases it. When the model is calibrated to match the joint distribution of hours, income, and wealth, the required degree of increasing returns to scale is still much too high to be supported empirically (although smaller than similar homogeneous agent economies). We also find that the model robustly predicts only one sunspot, despite having 1,262 predetermined state variables.
Keywords: Heterogeneity, Sunspots
JEL Classification: E21, E25, E62
Suggested Citation: Suggested Citation