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Households, auctioneers, and aggregation

Chipeniuk, Karsten O. and Katz, Nets Hawk and Walker, Todd B. (2022) Households, auctioneers, and aggregation. European Economic Review, 141 . Art. No. 103997. ISSN 0014-2921. doi:10.1016/j.euroecorev.2021.103997.

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We examine aggregation in the neoclassical growth model with aggregate shocks and uninsurable employment risk, as well as related environments. We introduce a Walrasian auctioneer whose job is to report to households all possible state-contingent future prices. Households take these as given when forming expectations and making optimal consumption/savings decisions, and the auctioneer adjusts her forecasts until markets clear. This natural dichotomy between the households and the auctioneer allows us to study each problem in isolation as well as to discuss the intersection. On the household side, we separate an explicit expression for the linear permanent income component of savings from a well-behaved nonlinear adjustment arising from precautionary behavior and incomplete markets. Equipped with this decomposition, we then study how economies aggregate in the presence of various auctioneer types that are popular in the literature. The steady-state auctioneer of Huggett (1997) and Aiyagari (1994) offers a paper-and-pencil analysis of aggregation that provides a bound on more complex environments. We provide an economic interpretation of the regression coefficients and explain the lack of time variation in the auctioneer of Krusell and Smith (1998). We also introduce a new numerical method which uses the empirical distribution of auctioneer forecasts to substantially improve solution accuracy in cases where the standard coefficient of determination and other well-known statistics prove to be misleading.

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Additional Information:© 2021 The Authors. Published by Elsevier. This is an open access article under the CC BY-NC-ND license. Received 12 April 2021, Revised 25 October 2021, Accepted 13 November 2021, Available online 11 December 2021, Version of Record 15 December 2021. Katz acknowledges support from National Science Foundation, United States grant DMS 1266104. We would like to thank participants at the NBER Summer Institute, the Federal Reserve Banks of Chicago, Cleveland, Dallas and Richmond, Reserve Bank of New Zealand, Australian National University, University of Virginia, Bundesbank Spring Conference, Stanford Institute for Theoretical Economics, Konstanz Seminar on Monetary Theory and Policy, CEMLA Research Seminar and World Congress of the Econometric Society; and Tom Winberry, Kurt Mitman, Tony Smith, Sevin Yeltekin, and Eric Young for helpful comments. We thank the editor, Florin Bilbiie, for several excellent suggestions.
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Subject Keywords:Aggregation; Heterogeneous agents; Incomplete markets
Classification Code:JEL classification E21; D52; E24
Record Number:CaltechAUTHORS:20220308-454082000
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Official Citation:Karsten O. Chipeniuk, Nets Hawk Katz, Todd B. Walker, Households, auctioneers, and aggregation, European Economic Review, Volume 141, 2022, 103997, ISSN 0014-2921,
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:113804
Deposited By: George Porter
Deposited On:09 Mar 2022 15:49
Last Modified:09 Mar 2022 15:49

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