Introduction: Heterogeneity and Macroeconomics

Abstract

Macroeconomic research, by its definition, analyzes the behavior of the aggregated economy. At a first glance, it seems therefore a reasonable simplification to assume the presence of individually optimizing but representative agents (consumers, producers, governments, central banks, etc.) when developing respective models. However, we know from many empirical analyses that economic agents in fact differ in many aspects. As noted by Guvenen (2011), there are two reasons why economists might want to include this heterogeneity among agents in their models. First, they may want to study cross-sectional or distributional issues. Questions about distribution are not only important to understand why income or wealth inequality exist and rise in many industrialized economies.