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Events of Department of Economics

March 21, 2019 at 12:30
Seminar Room 5.e4.sr04 - Via Roentgen 1

Seminar (Joint with the BAFFI CAREFIN)


Shocks and Frictions in Business Cycles with Heterogeneous Agents

Ralph Luetticke (University College London) Abstract

Does market incompleteness change our view on the sources of business cycle fluctuations? Using a Bayesian likelihood approach, we estimate a Heterogeneous Agent New Keynesian (HANK) model in which aggregate demand and investment depend on aggregate changes in idiosyncratic income risk and portfolio liquidity, which are partly exogenous and partly respond to other aggregate shocks. We use the estimated model to compare the decomposition of U.S. GDP, consumption, and investment growth to various New Keynesian models without incomplete markets. We find that changes in income risk and portfolio liquidity are important drivers of the business cycle.