I construct a heterogeneous agents economy that mimics the time-series behavior of the US earnings distribution from 1963 to 2003. Agents face aggregate and idiosyncratic shocks and accumulate real and financial assets. I estimate the shocks driving the model using data on income inequality, on...

This paper studies a quantitative dynamic general equilibrium life-cycle model where parents and their children are linked by bequests, both voluntary and accidental, and by the transmission of earnings ability. This model is able to match very well the empirical observation that households with...

This paper quantifies the size of precautionary savings implied by a dynamic general equilibrium model with heterogeneous agents when explicitly considering the labor supply decision of households. I find that precautionary savings are smaller than if they were measured by use of a model economy...

International capital flows have increased dramatically since the 1980s, with much of the increase being due to trade in equity and debt markets. Such developments are often attributed to the increased integration of world financial markets. We present a model that allows us to examine how...

This paper examines how policies affect people's welfare during business cycles when markets are incomplete. In particular, we analyze cyclical policies such as cyclical taxation and cyclical unemployment insurance. Those policies play two roles: smoothing the income (and consumption) process...

In this paper we demonstrate that different incomplete markets models yield qualitatively distinct predictions about how consumption growth responds to declines and increases in earnings. Markets are either exogenously incomplete in that households can only trade a risk-free bond, subject to a...

An unresolved issue in international macroeconomics is the apparent lack of risk-sharing across countries, which contradicts the prediction of models based on the assumption of complete markets. We asses the importance of international financial frictions in this issue by constructing an...