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Rustam Jamilov
University of Oxford
Fall, 2023
G ORMAN (1961)
Finite set N with cardinality N of agents, indexed by i. Denote yi (p, ωi ) as preference for a
homogenous good of agent i, given price p ∈ R1 , and wealth ωi . Then, aggregate demand:
N
X N
X
Y(p, ω1 , . . . , ωN) = yi (p, ωi ) ≡ Y(p, ωi )
i i
| {z }
?
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G ORMAN (1961)
True iff:
∂ yi (p, ωi ) ∂ yj (p, ωj )
= ∀i, j ∈ N
ωi ωj
Strong static aggregation if linear Engel curves = MPC homogeneity.
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R UBINSTEIN (1974)
Agent maxes consumption ct given HARA utility, discount factor β, wealth ωt , risky asset
f
allocation αt , risky return Rat , risk-free return Rt , and linear absolute risk aversion
′′ ′ 1
RA(c) ≡ −U(c) /U(c) = A+Bc :
T
!
X
max E β t U(ct )
{ct ,αt }
t
f
s.t. ωt+1 = (ωt − ct ) αt Rt + (1 − αt )Rat
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R UBINSTEIN (1974)
T
!
X
t
max E β U(ct )
{ct ,αt }
t
f
s.t. ωt+1 = (ωt − ct ) αt Rt + (1 − αt )Rat
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C ONSTANTINIDES (1982)
There exists a vector of positive numbers λ ≡ (λ1 , . . . , λm ) such that the solution to (1) below
is (xi ) = (x∗i ) and (yj ) = (y∗j ):
Xm
max λi Ui (xi )
x,y
i=1
subject to
yj ∈ Yj , ∀j
xi ∈ Xi , ∀i
X X X (1)
xih = yjh + ωih , ∀h
i j i
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C ONSTANTINIDES (1982)
m
" #
X
max max λi Ui (xi )
y x
i=1
subject to
yj ∈ Yj , ∀j
xi ∈ Xi , ∀i
X X X (2)
xih = yjh + ωih , ∀h
i j i
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C ONSTANTINIDES (1982)
subject to
xi ∈ Xi , ∀i
(3)
X
xih = zh , ∀h
i
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C ONSTANTINIDES (1982)
Finally, solve (4) below:
max U(z)
z,y
subject to
yj ∈ Yj , ∀j
(4)
X
yjh + ωh = zh , ∀h
j
Given λ ≡ (λ1 , . . . , λm ), if m consumers are replaced by one representative agent with utility
over aggregate consumption U(z), endowment equal to the sum of m consumers’
endowments, and shares P the sum of the m consumers’ shares, then price vector p∗ and the
associated (1 + n)-tuple ( i x∗i , y∗j ) is an equilibrium of Problem (4).
subject to:
T
X
δ (yt − Ct ) + ωo = 0
t=1
p
(5)
yt = yt + ϵt
p p
yt = yt−1 + ηt
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D EATON AND PAXSON (1994)
First-differencing the solution:
1
∆Ct = ηt + PT−t ϵt ≈ ηt (6)
τ
τ =0 δ
vari Cit − vari Cit−1 ≈ var (ηt ) (7)
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B LUNDELL , P ISTAFERRI , AND P RESTON (2008)
General empirical model:
1
∆ct = αηt + β PT−t ϵt
τ
τ =0 δ
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TAKEAWAY
Moreover, with linear Engel curves, equilibrium does not depend on (re-distribution).
The choice of λ and the distribution of ω can influence the aggregate outcome.
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TAKEAWAY
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