Intergenerational Redistribution in the Great Recession

Andrew Glover, Jonathan Heathcote, Dirk Krueger and José-Víctor Ríos-Rull
Authors registered in the RePEc Author Service: José-Víctor Ríos-Rull

No 498, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: We construct a stochastic overlapping-generations general equilibrium model in which households are subject to aggregate shocks that affect both wages and asset prices. We use a calibrated version of the model to quantify how the welfare costs of big recessions are distributed across different household age groups. The model predicts that younger cohorts fare better than older cohorts when the equilibrium decline in asset prices is large relative to the decline in wages. Asset price declines hurt the old, who rely on asset sales to finance consumption, but benefit the young, who purchase assets at depressed prices. In our preferred calibration, asset prices decline 2.4 times as much as wages, consistent with the experience of the US economy in the Great Recession. A model recession is close to welfare neutral for households in the 20?29 age group, but translates into a large welfare loss of more than 8% of lifetime consumption for households aged 70 and over.

Keywords: Asset prices; Great Recession; Overlapping generations; Aggregate risk (search for similar items in EconPapers)
JEL-codes: D31 D58 D91 E21 (search for similar items in EconPapers)
Pages: 73 pages
Date: 2014-05-20
New Economics Papers: this item is included in nep-dge and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Intergenerational Redistribution in the Great Recession (2020)
Working Paper: Intergenerational Redistribution in the Great Recession (2011)
Working Paper: Intergenerational redistribution in the Great Recession (2011)
Working Paper: Intergenerational Redistribution in the Great Recession (2011)
Working Paper: Intergenerational Redistribution in the Great Recession (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:498

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