First FTGRN Webinar: HANKSSON

We are happy to invite you to the first webinar of the Financial Transactions ”Big Data” Global Research Network (FTGRN):

HANKSSON*

by Florin O. Bilbiie (Bocconi, Cambridge and CEPR), Sigurd Mølster Galaasen (Norges Bank) Refet S. Gürkaynak (Bilkent and CEPR) Mathis Mæhlum (Norges Bank) Krisztina Molnar (Norwegian School of Business Economics)

Abstract

HANK Sufficient Statistics Out of Norway (HANKSSON) answers a core question of the heterogeneity in macroeconomics literature: does heterogeneity amplify the aggregate effects of demand policies and shocks? We provide two sufficient statistics (SS) and test them using individual-level matched data for personal characteristics, income, wealth and non-imputed, actual consumption for the Norwegian population. The first SS gauges whether heterogeneity drives a wedge between the (representative agent) average MPC and a model-consistent (heterogeneous agent) aggregate MPC. The second SS elicits whether the consumption of constrained, "hand-to-mouth" agents is more exposed to aggregate fluctuations. Our key finding is that to analyze aggregate behavior, one does not need to keep track of heterogeneity: the average and the aggregate are about the same. We show that the amplification result currently prevalent in the literature is due to using labor earnings and is overturned when using model-consistent disposable income. This is due to the strong insurance effect of taxes and transfers; when applied to our data, even the much less progressive US tax and transfer system produces no amplification due to heterogeneity. The same “close to irrelevance” conclusion arises based on the second statistic using consumption data directly. Not even during the Great Recession do we see heterogeneity contribute meaningfully to demand shock amplification.

Hope to see you there!

Best regards,

FTGRN communication team.