What model features and calibration strategies yield a large average marginal propensity to consume (MPC) in heterogeneous agent models? Through a systematic investigation of models with different preferences, dimensions of ex-ante heterogeneity, income processes and asset structure, we show...

We study optimal policy when heterogeneous markups reflect compensation for uninsurable persistent idiosyncratic risk. The optimal labor tax keep rate equals (1) the aggregate markup times (2) workers' consumption share divided by their Pareto weight. Markups correctly capture the private cost...

We analyze the saving motives of European households using micro-data from the Household Finance and Consumption Survey (HFCS), which is conducted by the European Central Bank. We find that the rank ordering of saving motives differs greatly depending on what criterion is used to rank them. For...

Recent empirical evidence documents that different individuals earn systematically different rates of return, even after controlling for portfolio composition. We propose a general equilibrium theory of residual heterogeneity in rates of return on wealth by embedding a financial market with...

Business cycle models often abstract from persistent household heterogeneity, despite its potentially significant implications for macroeconomic fluctuations and policy. We show empirically that the likelihood of being persistently financially constrained decreases with cognitive skills and...

This study uses micro data and an overlapping generations (OLG) model to show that general equilibrium (GE) forces are critical for understanding the relationship between aggregate fertility and household savings. First, we document that parents perceive children as an important source of...

When optimizing consumption-savings decisions is costly, people may instead rely on quick-fixes, simple policy functions that avoid these costs. We introduce a model of quick-fixing. To study it empirically, we field a novel survey that measures households' consumption policy functions in...

This paper explores sources of complexity in dynamic optimization, examining how individuals navigate variation in incomes, prices, and returns in ten-period consumption-saving decisions. Our findings reveal that dynamic optimization poses significant challenges, resulting in suboptimal choices...

We embed the microeconomic decisions associated with investment under uncertainty, capacity utilization, and machine replacement in a general equilibrium model based on putty-clay technology. In the presence of irreversible factor proportions, a mean-preserving spread in the productivity of...

This paper develops a model to study the aggregate effects of labor market frictions in a small open economy where firms grow slowly and make fixed export investments. The model features interactions between dynamic investments in exporting and search frictions with job-to- job mobility. A...