Identification in heterogeneous agent economies can be obtained by utilizing restrictions which are consistent with alternative mechanisms. Survey data that are informative about the proportion of agents whose behavior is distorted due to financial frictions provides additional information. The latter can shrink the set of admissible models and preference parameter values. This paper provides identification analysis, simulation evidence and an application using Spanish data where the borrowing constrained are identified by combining information from different surveys. Results suggest that incomplete markets can potentially rationalize the gap between micro and macro elasticities for aggregate consumption and labor supply .
The paper shows that preferences in heterogeneous agent economies are identifiable without taking a stance on the underlying source of market incompleteness and heterogeneity. While the proposed restrictions deliver bounds for these parameters, distributional information such as the extensive margin of financially constrained households can sharpen identification. The paper provides estimates using Spanish data and shows that accounting for the extensive margin can contribute in bridging the gap between macro and micro estimates of relative risk aversion and the Frisch elasticity of labor supply. This has implications for measuring distortions in bond and equity markets and for predicting the equity premium .
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Identification
The paper shows that preferences
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can be obtained by utilizing restrictions which are consistent with alternative mechanisms. Survey data that are informative about the proportion of agents whose behavior is distorted due to financial frictions provides additional information. The latter can shrink the set of admissible models and preference parameter values. This paper provides identification analysis, simulation evidence and an application
are identifiable without taking a stance on the underlying source of market incompleteness and heterogeneity. While the proposed restrictions deliver bounds for these parameters, distributional information such as the extensive margin of financially constrained households can sharpen identification. The paper provides estimates
R
where the borrowing constrained are identified by combining information from different surveys. Results suggest that incomplete markets can potentially rationalize
and shows that accounting for the extensive margin can contribute in bridging
R
micro and macro elasticities for aggregate consumption and labor supply
macro and micro estimates of relative risk aversion and the Frisch elasticity of labor supply. This has implications for measuring distortions in bond and equity markets and for predicting the equity premium