Heterogeneous Households Research Articles

Consumption heterogeneity and monetary policy in an open economy

We incorporate two types of agents (Ricardian versus Keynesian) into a standard open economy macro model. We find that consumption heterogeneity has major implications for the impact of monetary policy shocks, the international transmission mechanism, and the design of optimal monetary policy. With sticky prices, the existence of Keynesian agents causes a spillover of shocks across countries, and leads to the interdependence of optimal monetary targeting rules. In the case of local currency pricing, consumer heterogeneity leads an optimal monetary policy to generate currency misalignment and deviations from the law of one price. Theoretically, there are ranges of household heterogeneity in which monetary policy becomes ineffective, but this depends sensitively on the interaction of aggregate demand and relative price effects.

The Rise of Niche Consumption

Over the last 15 years, individual households have concentrated their spending on a few preferred products. However, this is not driven by “superstar” products capturing larger market shares. Instead, households increasingly purchase different products from each other. As a result, aggregate spending concentration has decreased. We develop a model of heterogeneous household demand and use it to conclude that increasing product variety drives these divergent trends. When more products are available, households select products better matched to their tastes. This delivers welfare gains from selection equal to about half a percent per year in the categories covered by our data. (JEL D12, D91, E21, L66)

Does cooperative membership enhance inorganic fertilizer use intensity? Panel data evidence from maize farmers in Ethiopia

AbstractAgricultural cooperatives are increasingly being viewed as an effective means of promoting agricultural technologies in developing countries. This paper examines the effects of cooperative membership on inorganic fertilizer use intensity. Employing a three‐wave panel dataset relating to smallholder maize farmers in Ethiopia, we model inorganic fertilizer application as a two‐step decision‐making process involving both fertilizer adoption and its use intensity. To reflect these two related steps, we use a double‐hurdle model. We account for unobservable household heterogeneity and endogeneity utilizing a correlated random‐effects framework and a control function approach. The findings reveal that cooperative membership increased inorganic fertilizer use intensity, as well as the probability of it being used in the first place by 4.2% and 5.3%, respectively. Following further examination of who benefits most among cooperative members, we discovered that membership benefits all farmers in terms of fertilizer use intensity, irrespective of the members’ poverty status. However, we did not observe a significant effect of cooperative membership on the likelihood of fertilizer use by land‐poor and less asset‐endowed households. This highlights the necessity of implementing policies that provide poor and marginalized Ethiopian maize farmers with resources that enhance the contribution agricultural cooperatives make to their well‐being.

Do required minimum distribution 401(k) rules matter, and for whom? Insights from a lifecycle model

Tax-qualified vehicles have helped U.S. private-sector workers accumulate $33Tr in retirement plans. An often-overlooked important institutional feature shaping decumulations from these plans is the “Required Minimum Distribution” (RMD) regulation requiring retirees to withdraw a minimum fraction from their retirement accounts or pay excise taxes on withdrawal shortfalls. Our calibrated lifecycle model measures the impact of RMD rules on heterogeneous households’ financial behavior during their work lives and in retirement. The model shows that reforms delaying or eliminating the RMD rules have little effect on consumption profiles, but they would influence withdrawals and tax payments for households with bequest motives.

Wealth preference and rational bubbles

In this paper, we show that rational bubbles can exist within a neoclassical economy, provided that households derive utility from holding wealth. Hence, we provide a microfoundation for bubbles that relies on a frictionless economy with an infinitely-lived representative household. While our bubbly equilibria are very similar to those obtained by Tirole (1985) in an overlapping generation economy, the underlying mechanism is fundamentally different. Instead of relying on an exchange across heterogeneous households, the bubble relies on the representative household’s willingness to accumulate wealth without the intention of spending it. Turning to public debt, we carefully review the similarities and the differences between rational bubbles and Ponzi schemes. We establish that the Ricardian equivalence must hold in any of our equilibria. Finally, within a monetary economy, we show that the preference for wealth is fundamentally different from money-in-the-utility-function.

Macroeconomic impacts of energy communities and individual prosumers: an assessment of transformation pathways

BackgroundActive citizen participation, especially as collective prosumers in energy communities or as individual prosumers, is vital for a sustainable energy transition. As such, it is explicitly supported by European Union policy. It is the aim of policy-makers that a large proportion of the residential energy demand will be met in this way. At present, there is limited analysis on the macroeconomic impacts of such an increase in prosumers. In this study, we develop and apply an approach for assessing the macroeconomic impacts of transformation pathways, which depict potential developments of individual and collective prosumers.ResultsThe paper methodologically demonstrates how to macroeconomically assess scenarios and transformation pathways originating from cross-impact balance analyses by means of an input–output analysis. In particular, it is shown how qualitative data on future developments can be transformed into financial flows so as to enable an input–output analysis. Based on the assessment of two transformation pathways, our main findings suggest that there might be positive regional and national effects on net value added and employment as well as reductions in CO2 emissions. We find that the scale of the effects strongly depends on the spatial distribution of heterogeneous households and the underlying economic structure.ConclusionsOur study represents a methodological advancement by showing how scenarios and transformation pathways can be assessed in terms of their macroeconomic consequences. This study shows that energy communities and individual prosumers might generate positive effects on value added and on employment. Given that households fix their energy supply options for decades, political decisions to support the energy transition in the residential sector should be taken as soon as possible.

House prices, homeownership, and household consumption: Evidence from household panel data in Korea

Using Korean household panel data, this paper investigates the impact of house price changes on household consumption, focusing on asymmetric responses across homeownership status and the direction of house price fluctuations. I find that rising house prices have little influence on household consumption, whereas a decrease in house prices brings about a substantial impact. Falling house prices reduce homeowners’ consumption and raise renters’ consumption, implying that the opposing pressures on two household groups could substantially offset each other. The responses are found to be asymmetric across several aspects of household heterogeneities. Owners of multiple houses or relatively larger residences and older owners show greater responses. In response to rising house prices, homeowners with loan-to-value ratios at the standard cutoff level for a home equity line of credit substantially increase their consumption. Several pieces of evidence support the operation of the wealth effect and collateral effect channels.

Household heterogeneity in macroeconomic models: A historical perspective

In this paper, we trace the rise of heterogeneous household models in mainstream macroeconomics from the turn of the 1980s to the early 2000s, when these models evolved into an identifiable and consistent literature. We show that different communities across the US and Europe considered heterogeneous agents for various reasons and developed models that differed in their theoretical and empirical strategies. Minnesota economists primarily focused on incorporating stochastic heterogeneity into general equilibrium models. Other researchers refined growth models or tried to find alternatives to the permanent income hypothesis, leading them to explore more structural heterogeneity. We also document the computational challenges that some of these communities faced, how they gradually became aware of each other's work, and how they faced criticisms from macro- and microeconomists, many of them trained in European countries and dissatisfied with the theoretical and empirical aggregation strategies underlying these models.

Township, County Town, Metropolitan Area, or Foreign Cities? Evidence from House Purchases by Rural Households in China

In the context of China’s New Urbanization Strategy, it is of great practical significance to study rural–urban population migration from the perspective of house purchases by rural households. In this paper, the Huai’an Rural Survey Dataset (872,414 households) was used to study the heterogeneity of rural households’ house purchases in different classes of urban destinations, and its influencing factors were analyzed with GeoDetector. The results show that the urban house purchase destinations preferred by farmers were county towns, townships, foreign cities, and metropolitan areas, indicating that in situ urbanization has become the main path of urbanization for farmers in Huai’an. Among the environmental influencing factors, the rural environment had the greatest influence on house purchases locally (in the township and county town), and this influence decreased with the outward shift of house purchase destinations. The housing environment, the settlement environment, and the population and family environment were the main environmental impact elements. The natural environment and the policy environment had little influence on the house-purchasing behavior of farmers, and the location environment was critical in exotic locations (metropolitan areas and foreign cities). Therefore, this paper argues that a higher demand for housing is growing in China’s less developed rural areas, creating a situation in which the metropolitan area is the core and the county town is the main contributor. In terms of policy improvements, it is important to pay more attention to small cities such as counties and to offer housing concessions and welfare to “new citizens” from rural areas, as well as to significantly improve the housing, earnings, and public service environment for those who prefer to stay in the countryside.

Effects of Incentives and Penalties on Farmers’ Willingness and Behavior to Separate Domestic Waste-Analysis of Farm Household Heterogeneity Based on Chain Multiple Intermediary Effects

It is important to investigate the influence of incentives and penalties on farmers’ willingness and behavior towards domestic waste separation and the mechanism of influence. It is helpful for the government to formulate policies to guide farmers to actively participate in domestic waste separation, solve the problem of rural domestic waste pollution, and improve the effectiveness of rural waste separation management. By using the public data of 2020CLES, we analyzed the influence of incentives and penalties on farmers’ willingness and behavior towards domestic waste separation by using the Probit model, based on the technology acceptance model, using a chain of multiple mediating effects. The results are as follows. Firstly, the net effect of incentives and penalties on farmers’ willingness and behavior to separate household waste was 6.86%, and the net effect of separation behavior was 33.37%. Relatively speaking, the strengthening effect of incentives and penalties on farmers’ domestic waste sorting behavior is stronger than the promotion effect on farmers’ domestic waste sorting intention. Secondly, perceived ease of use and perceived usefulness had significant chain mediating effects, with perceived ease of use having the strongest mediating effect. Thirdly, the incentives and penalties have a stronger effect on promoting the willingness of female farmers, elderly farmers, and farmers with low education to separate domestic waste. Finally, the influence of individual and household characteristics of farmers on their willingness and behavior to separate household waste varies. Accordingly, suggestions for improving the willingness and behavior of farmers to separate domestic waste are proposed in the following aspects: improving the reward and punishment system, making good use of market instruments, and increasing farmers’ awareness level and value recognition of domestic waste separation.

Herding behavior in COVID-19 vaccine hesitancy in rural Zimbabwe: The moderating role of health information under heterogeneous household risk perceptions

COVID-19 vaccine hesitancy poses a global health threat by potentially delaying the attainment of herd immunity to attenuate infection and transmission. Most governments across the world are engrossed with formulating strategies to surmount conservative group behavior such as vaccine hesitancy typical under risky and uncertain situations such as in the case of COVID-19. This paper examines herding behavior in vaccine hesitancy with a special focus on the moderating role of household access to health information from village health workers under different risk perceptions. We use the 2021 Zimbabwe Vulnerability Assessment Committee cross-section household national survey consisting of 13, 583 valid observations. Our major findings indicate that herding behavior plays a role in rural households’ hesitancy to COVID-19 vaccine inoculation. Furthermore, whilst access to health information from village health workers reduces herding behavior in vaccine hesitancy, it does so more when the household perceives itself to be at high risk of contracting COVID-19. Analysing herding behavior in vaccine hesitancy can help policymakers develop more targeted vaccination strategies, such as promoting access to health information through channels like village health workers, especially for households at high risk of contracting COVID-19.

Monetary Policy and Redistribution in Open Economies

This paper develops an open-economy heterogeneous-agent New Keynesian model in which households differ in their income, wealth, and real and financial integration with international markets. We use the model to reassess classic questions in international macroeconomics from a distributional perspective. Our analysis yields two main takeaways. First, heterogeneity in households’ international integration plays a central role in driving the unequal consumption responses to external shocks, more so than income and wealth. Second, the conduct of monetary policy in open economies faces a stabilization-inequality trade-off, with fixed exchange rate regimes leading to amplified but more equal consumption responses to external shocks.

Evaluating Peer-to-Peer Electricity Markets across the U.S. Using an Agent-Based Modeling Approach

The diffusion of distributed energy resources can overcome some challenges associated with the historical centralized model of electric power distribution. Decentralized generation by residential solar photovoltaic cells creates the potential for peer-to-peer (P2P) electricity trading, where households can act as consumers and prosumers to buy and sell renewable electricity. P2P energy markets are emerging at locations across the globe, and market performance is affected by various social, economic, and environmental factors. This research applies an agent-based modeling (ABM) framework to simulate electricity trades between heterogeneous households in a decentralized market. The P2P system is tested for 15 locations in the United States that vary in climate parameters and local economic factors. The results from these simulations are compared to assess how differences in climate, demand pattern, retail rate, and irradiance affect market performance. Simulations demonstrate that market outcomes rely on the ratio of prosumers to consumers, environmental factors, and geographic conditions. Battery energy storage overcomes limitations associated with faulty forecasting and improves the flexibility of household-generated solar resources to increase the proportion of production that is sold in the P2P market. The application of the agent-based modeling framework demonstrates how P2P markets can be expected to perform for various locations and can be applied to assess alternative locations for market performance.

HETEROGENEITY, FRICTIONAL ASSIGNMENT, AND HOME‐OWNERSHIP

AbstractWe study the composition of the housing stock across ownership and rental markets in a dynamic model of frictional assignment. Houses are rented or sold to heterogeneous households that sort over quality. Due to matching frictions and an increasing ownership surplus, wealthy households tend to own and lower value housing tends to be rented, even without financial frictions or rental supply constraints. When calibrated to match key housing market features of the average U.S. city, the model is consistent with observed empirical relationships across cities. We study the model's implications for affordability, ownership, and the impact of progressive property taxation.

Monetary Policy and Inequality

We ask three questions about the connection between monetary policy and inequality. First, does monetary policy affect inequality? While different households respond to changes in monetary policy for different reasons, we argue that the overall consumption effects are relatively evenly distributed across households. Second, does household heterogeneity change our understanding of monetary policy transmission? A more careful account of microeconomic consumption behavior materially alters our understanding of transmission channels, but has rather limited effect on our general view of the aggregate effects of monetary policy. Third, does inequality affect the optimal conduct of monetary policy? Since monetary policy is a rather blunt distributional tool, we argue that even a central bank with an explicit distributional mandate would not deviate much from conventional policy prescriptions.

Population Synthesis Accommodating Heterogeneity: A Bayesian Network and Generalized Raking Technique

Agent-based microsimulation modeling techniques are adopted for urban system modeling mainly because of their capacity to address the complex interactions among individuals, households, and other urban elements. The performance of urban simulation models is largely dependent on the quality of the input data, which is generated through a population synthesis procedure. This study proposes a Bayesian network and generalized raking techniques for population synthesis. The Bayesian network is used to generate the synthetic population pool from the microsample, and generalized raking is used to fit the synthetic population with the control total. Some of the key features of the proposed population synthesis are as follows: accommodating heterogeneity based on both household and individual attributes; tackling missing/incomplete observations in the microsample; and generating a true synthesis of the population from the microsamples. A data-driven structure learning technique is adopted to generate effective and optimal structures among the heterogenous households and individuals. This Bayesian network + generalized raking procedure is implemented to generate a 100% synthetic population at the smallest zonal level of dissemination area for the Central Okanagan region of British Columbia. The results suggest that capturing heterogeneity within the Bayesian network has tremendously benefitted the reconstruction process to efficiently and accurately generate a synthetic population from the available microsample. Finally, this population synthesis is developed as a component of the agent-based integrated urban model, currently under development at The University of British Columbia’s Okanagan campus.

Multidimensional Deprivation and Subgroup Heterogeneity of Rural Households in China: Empirical Evidence from Latent Variable Estimation Methods

Multidimensional Deprivation and Subgroup Heterogeneity of Rural Households in China: Empirical Evidence from Latent Variable Estimation Methods

Tax‐and‐transfer progressivity and business cycles

This paper studies how tax‐and‐transfer progressivity influences aggregate fluctuations when interacting with household heterogeneity. Using a simple static model of the extensive margin labor supply, we analytically characterize how a degree of progressivity influences differential labor supply responses to aggregate conditions across heterogeneous households. We then build a quantitative dynamic general equilibrium model with both idiosyncratic and aggregate productivity shocks and show that it delivers moderately procyclical average labor productivity and a large cyclical volatility of aggregate hours relative to output. Our quantitative exercises suggest that progressivity at the bottom of the income distribution shaped by the phasing out of transfers is key for these findings. Finally, we provide suggestive empirical evidence on the heterogeneity of employment responses across the wage distribution.

Full‐information estimation of heterogeneous agent models using macro and micro data

We develop a generally applicable full‐information inference method for heterogeneous agent models, combining aggregate time series data and repeated cross‐sections of micro data. To handle unobserved aggregate state variables that affect cross‐sectional distributions, we compute a numerically unbiased estimate of the model‐implied likelihood function. Employing the likelihood estimate in a Markov Chain Monte Carlo algorithm, we obtain fully efficient and valid Bayesian inference. Evaluation of the micro part of the likelihood lends itself naturally to parallel computing. Numerical illustrations in models with heterogeneous households or firms demonstrate that the proposed full‐information method substantially sharpens inference relative to using only macro data, and for some parameters micro data is essential for identification.

Tax-and-Transfer Progressivity and Business Cycles

This paper studies how transfer progressivity influences aggregate fluctuations when interacted with household heterogeneity. Using a simple static model of the extensive margin labor supply, we analytically characterize how transfer progressivity influences differential labor supply responses to aggregate conditions across heterogeneous households. We then build a quantitative dynamic general equilibrium model with both idiosyncratic and aggregate productivity shocks and show that the model delivers moderately procyclical average labor productivity and a large cyclical volatility of aggregate hours relative to output. Counterfactual exercises indicate that redistributive policies have very different implications for business cycle fluctuations, depending on whether tax progressivity or transfer progressivity is used. Finally, we provide empirical evidence on the heterogeneity of employment responses across the wage distribution, which supports the key mechanism of our model.