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Heterogeneity and the Dynamic Effects of Aggregate Shocks

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  • Andreas Tryphonides

Abstract

Using a semi-structural approach, the paper identifies how heterogeneity and financial frictions affect the transmission of aggregate shocks. Approximating a heterogeneous agent model around the representative agent allocation can successfully trace the aggregate and distributional dynamics and can be consistent with alternative mechanisms. Employing Spanish macroeconomic data as well as firm and household survey data, the paper finds that frictions on both consumption and investment have rich interactions with aggregate shocks. The response of heterogeneity amplifies or dampens these effects depending on the type of the shock. Both dispersion in consumption shares and the marginal revenue product of firms, as well as the proportion of investment constrained firms are key determinants of the fiscal multiplier.

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  • Andreas Tryphonides, 2020. "Heterogeneity and the Dynamic Effects of Aggregate Shocks," Papers 2007.14022, arXiv.org.
    • Handle: RePEc:arx:papers:2007.14022
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