Can a representative-agent model represent a heterogeneous-agent economy

Sungbae An, Yongsung Chang, Sun Bin Kim

Research output: Contribution to journalArticlepeer-review

23 Citations (Scopus)


Accounting for observed fluctuations in aggregate employment, consumption, and real wage using the optimality conditions of a representative household requires preferences that are incompatible with economic priors. In order to reconcile theory with data, we construct a model with heterogeneous agents whose decisions are difficult to aggregate because of incomplete capital markets and the indivisible nature of labor supply. If we were to explain the model-generated aggregate time series using decisions of a stand-in household, such a household must have a nonconcave or unstable utility as is often found with the aggregate US data.

Original languageEnglish
Pages (from-to)29-54
Number of pages26
JournalAmerican Economic Journal: Macroeconomics
Issue number2
Publication statusPublished - 2009 Aug 1

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)


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